Tamsyn Parker 's Opinion

Tamsyn Parker is the NZ Herald's Money Editor

Tamsyn Parker: Sky takes a hit, Drury watches pennies

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Rod Drury's stake in Xero is worth about $347 million but he still smarts at Air NZ's provincial airfares and the cost of an airport cab ride. Photo / Mark Mitchell
Rod Drury's stake in Xero is worth about $347 million but he still smarts at Air NZ's provincial airfares and the cost of an airport cab ride. Photo / Mark Mitchell

Sky TV has taken a big hit over the news of losing the rights to show English Premier League football to TVNZ and Coliseum EPL Management, but there appears to be division over the longer-term impact.

Mark Warminger, fund manager at Milford Asset Management, views the deal as a serious threat to the pay TV business.

"It highlights pretty much all of Sky's content is possibly at risk over the longer term."

Warminger said it could be two or three years before the full impact on Sky was known but the situation put a "big dent" in the company's value.

Warminger warns the risk to Sky is that it has to pay more to win rights which could erode its profits and potential to pay out dividends.

But Shane Solly, a fund manager at Mint Asset Management, believes there could be a silver lining to the Coliseum loss.

"Coliseum may have done Sky TV a favour in snaring the EPL. The move reduces regulatory risk as it shows content is contestable. If Coliseum proves that an online model works then Sky TV can increase returns to shareholders by dis-aggregating content and selling it [at] higher margins to targeted audiences," Solly says.

"Sky TV already controls online rights to the bulk of the sports it broadcasts and it has the capital to monetise content across whatever distribution platform provides the biggest bang for their buck. Pundits have been talking about Sky TV's demise for the last 10 years. In the meantime [its] sharp management team just keeps on reinventing the business model."

Sky TV lost 21c or 4.6 per cent on Wednesday after the premier league deal was unveiled.

Yesterday the shares closed down another 16c on $5.25.

WATCHING THE PENNIES

Xero chief executive Rod Drury might be getting richer by the day - if Xero's rocketing share price is anything to go by - but according to his twitter feed he's still worried about everyday costs.

Drury owns around 19 per cent of Xero, whose shares have been hitting new highs this week, valuing his stake at around $347 million.

But on Monday, Drury complained about the cost of flights between Napier and Wellington tweeting: "NZ provincial flights outrageous. NPE-WGN-NPE $448 after $193 starfish discount. @FlyAirNZ love you but Ouch!"

Last week Drury was opining about the cost of Auckland taxis tweeting: "In Sydney with the @Xero team. Why are taxis so much cheaper? Airport to CBD $40. Less than half Auckland and almost palatable."

Sure he's got a point about the two costs being high but surely they're not putting too much of a dent in his pocket. Xero shares closed up 1c on $16 yesterday.

WYNYARD A GO

Wynyard Group is ploughing ahead with its sharemarket listing on July 19 after its book build revealed enough support for the company to raise the $65 million it had hoped for.

But the $1.15 price - at the low end of its $1.10 to $1.65 range - and the lack of oversubscriptions shows there wasn't overwhelmingly high demand for the stock.

Prior tech company float SLI Systems received investor demand of two and a half times the $27 million it was seeking ahead of its May 31 listing.

Admittedly SLI was much smaller and its book build was conducted in early May, before the NZX took a turn for the worse.

Wynyard seems to have divided the investment industry, with those keen on it really keen and others not wanting to invest at all over concerns about how to value the technology company in the current environment.

One source who is a Wynyard fan said just like Diligent and Xero, the Wynyard business would take time to understand and those focusing on the near term may have misunderstood Wynyard's economic attractions.

The problem is it can take years to know if these technology companies will take off and ever make a profit.

Stock Takes wonders how many more technology floats the market will be able to absorb?

MIGHTY CHALLENGE

With just one out of five of New Zealand's major broking firms expecting Mighty River Power's share price to be above its $2.50 issue price in a year's time the float of Meridian Energy looks more challenging by the day.

Why would retail investors want to buy shares in another power company if the shares they have already bought in Mighty River have failed to make them any money?

Financial advisers would no doubt encourage investors to focus on the longer term and remind them that they will still be getting a good dividend from Mighty River.

But the headline share price is not looking favourable for the Government's mixed ownership model programme, especially when so much of its success relies on retail buy-in.

If the Government wants to maintain its promise of at least 85 per cent ownership going to New Zealanders at the point of partial sale, that could potentially mean over a billion dollars will need to be raised from the public to support Meridian's float.

Stock Takes understands Meridian's float is now looking more likely to happen in late October or early November, giving the market more time to recover from its current downward trend.

Mighty River Power shares closed down 4c on $2.26 yesterday.

AIR NZ FIRST

The challenges in getting Meridian Energy's float off the ground may mean the Government's sell-down of Air New Zealand will sneak in ahead of Meridian.

Air New Zealand's share price has been doing well of late following a strong performance from the company. A placement of shares with institutional investors could probably be done quite easily in its current state.

But that would rule out letting retail investors into the offer as it would require a full prospectus and offer document to be put together - a process which would take much longer.

Some will argue that Air New Zealand is not suitable for many retail investors - especially those seeking stable performance with strong dividend yields.

Air New Zealand is a highly cyclical stock exposed to the vagaries of the airline industry, which include volatile fuel prices and tourism whims impacted by the likes of terrorism, volcanic eruptions and viral outbreaks.

Investment bankers would probably argue in favour of a placement done quickly, to strike while the stock is hot, but in the end it will come down to whatever the Government sees as politically palatable.

Stock Takes hasn't heard of any joint lead manager appointments as yet so any move is likely to be several months away. Air NZ shares closed down 1.5c yesterday at $1.48.

FLOATING ON

Outside of the Government's privatisation plans it seems that two other major floats on the horizon are progressing.

Stock Takes hears Synlait Milk's prospectus could be out online as soon as next week and representatives of Z Energy have been in Australia presenting a healthy view of the company before its third quarter float.

Synlait is expected to raise between $100 million and $150 million through its listing while Z Energy, due to be partially sold down by Infratil and the New Zealand Superannuation fund, is targeting $500 million to $600 million.

- NZ Herald

Tamsyn Parker

Tamsyn Parker is the NZ Herald's Money Editor

Tamsyn Parker is the NZ Herald's Money Editor. A business journalist for ten years, she has worked in the UK and NZ for the New Zealand Herald, the National Business Review and a specialist publication on investment products for financial advisors. She is passionate about helping readers learn more about to make their money work for them.

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