Rather like its product, Sky is a real Marmite of a stock. Depending on your point of view, Sky TV has either opened up the vista of sports across the world to a grateful public, or it has helped the British to pile on the pounds while wasting their lives consuming a smorgasbord of pointless activities.
The sport that really counts is, of course, football, that game the inventors (us) seem so hopeless at playing. In terms of Sky’s financials, nothing else much matters, and the message from the latest numbers is that the financials don’t seem to matter much to the punters. “Sky can raise prices and pass through increased programming costs because they offer differentiated services. It all comes back to the same thing. Content is King. Stay long.” Thus the enthusiastic Neil Campling at brokers Aviate.
He might have said footy is king, and that’s the problem, say his rivals at Stifel. Sky will pay £1.4bn a year from 2017, or £330m more than it had expected. The company plans to squeeze £200m out of costs, with the rest recouped from further price increases. With BT now in the game and (presumably) about to absorb EE, the brokers don’t believe Sky’s growth is sustainable.
The bear case says the technology that has already made those dishes obsolete will allow the clubs to by-pass Sky completely within a decade. History says that Sky has bet twice on changing technology and won both times, which suggests that the management has not been merely gambling. It is also a formidable marketing machine (something BT has never been) with a proven capacity to innovate.
There has got to be a limit to how much the great British couch potato is prepared to pay for his habit, but so far there is little evidence that Sky has reached it. That existential threat is real enough, but may always be a decade away. Marmite indeed.
How not to invest £250bn
Expect Wednesday’s annual meeting of Aviva to be enlivened as usual by the irrepressible Philip Meadowcroft, a shareholder who still thinks of it as Norwich Union. Last year Aviva was “freeing people from the fear of uncertainty”. This year they will be freed from the uncertainty of the identity of their next chairman, now that John McFarlane is taking on the burden at Barclays.
This should allow CEO Mark Wilson to concentrate on knocking Aviva Investors into shape. The returns for with-profits policyholders have been mostly without-profit, while the shareholders have hardly cleaned up. Last year’s 11 per cent rise in the MSCI world index seems to have passed Aviva Investors by: it contributed just 1 per cent of the cash remitted up to the parent, and paid £150m, or 10 times as much, in fines and policyholder compensation.
This may be why its £250bn under management gets just three pages out of 300-odd in the annual report. Now Mr Wilson has made his own task harder by adding the £70bn run by Friends Life. The gains from combining life offices have proved illusory in the past, especially at Aviva, so Mr Wilson might explain why it’s different this time (he’s good at this). Still, shareholders focussing on portfolio performance makes a change from a row over pay. Except that we might get that too.
Name those muppets!
Fund managers, says Mick Davis, think that the mining sector is run by a bunch of muppets. Goodness, where did he get that idea from? Surely not from Rio Tinto’s disastrous takeover of Alcan? How about the “merger” of Xstrata, then run by Mr Davis, with Glencore which its CEO Ivan Glasenberg turned into a duck shoot of Xstrata execs? Then there is BHP’s takeover of Billiton, now reversed and opening a rich seam of fees in the process.
Mr Davis reckons the fund managers are not prepared to take the long view necessary to bring a mine to fruition. Perhaps, but the problem with miners is that they like mining. When metal prices rose, they talked of a “supercycle” and sunk the profits into more mines. Now there’s a world glut of iron ore. Definitely not muppets, though.