Sky was a gainer on Tuesday amid a retread of speculation that 21st Century Fox, its biggest shareholder, might be drawn into another takeover approach.
Kepler Cheuvreux turned positive on Sky with an £11 target price. Worries about football broadcast rights inflation and a potentially shrinking market mean Sky has derated to a 45 per cent discount to its historical average, which puts its UK business on an implied valuation of just 7 times earnings versus a sector at 16 times, the broker said.
“In our view, this huge valuation gap may revive interest from 21st Century Fox,” Kepler told clients.
“While [Fox chief executive James] Murdoch said at a recent conference that Fox was not lining up big deals in the short term, the 15 per cent decline in the pound, and a 23 per cent share price fall in Sky year to date, has made it nearly 40 per cent cheaper than what it was in dollar terms.”
On trading, Kepler forecast Sky’s revenue growth to keep outpacing peers thanks to innovations such as its Now TV streaming service and Adsmart, its personalised advertising platform.
And on broadcast rights, the broker highlighted that Sky’s English and German top-league football deals run until 2020 and 2021, respectively, which is said gives the company a two-year period of “exceptional visibility on major sports costs”.
Sky closed up 1.6 per cent at 847.5p.
Oil stocks led the wider market lower after Iran damped hopes that Wednesday’s Opec meeting might reach an agreement to freeze output.
The FTSE 100 was down 0.2 per cent, off 10.37 points, to 6,807.67 as Royal Dutch Shell B fell 2.2 per cent to £18.83 and BHP Billiton was down 1.5 per cent to £10.78.
Glencore was down 0.7 per cent to 208.3p with Canaccord downgrading to “hold” on valuation grounds.
Standard Chartered led the banks lower, losing 2.5 per cent to 610p.
Deutsche Bank repeated “sell” advice on StanChart in research arguing that pressure on returns for Asian banks is structural rather than cyclical, meaning the pace of earnings recovery is likely to be slower than investors expect.
Mitie eased 2.4 per cent to 180.4p. Investec, in belated response to Mitie’s profit warning last week, cut the outsourcer off its “buy” list. Uncertainty over the outlook means the shares merit a 20 per cent discount to peers, it said.
Packaging maker Smurfit Kappa lost 2.4 per cent to £17.29 after Jefferies downgraded to “hold”.
Jefferies cited a 20 per cent year-to-date increase in the price of cardboard used as raw material for recycling, and said that Smurfit’s attempt to raise its prices this month had been unsuccessful.
Johnston Press rose 1.2 per cent to 21p after Crystal Amber, the activist investor said to be lobbying for the newspaper publisher to restructure debt, lifted its stake to 6.7 per cent.
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