Establishing a sustainable operating model should not an insurmountable task for struggling pay-TV provider Sky Network Television, according to Jarden research.
With live sport returning more quickly than expected, Sky could outperform its initial recovery expectations, research analyst Arie Dekker said in a note this morning. He upgraded his rating on the stock to 'neutral' from 'underperform' and kept a target price of 16 cents.
Sky shares rose 0.7 per cent to 14.1 cents in early trading, but are still down more than 60 per cent year-to-date.
The onset of covid-19 brought added pressure to Sky, which was already overhauling its struggling operation after signalling its future will be in online streaming and premium sports rights.
In May, the company raised $119.2 million from investors to help fund that new direction.
At the time, Jarden said the ongoing decline in earnings, which had been accelerated by the pandemic, painted an "unflattering near-term outlook".
In his latest update, Dekker was more optimistic about Sky's ability to establish sustainable operating model.
"That should not be an insurmountable task," he said. "But investors still need to recognise the risks associated with doing this for an aggregator, largely of other party's content, while utilising an increasingly smaller infrastructure base of its own."
The most important driver for recovery would be premium subscriptions to online content, including sport. There was little prospect for growth in the broadband and RugbyPass parts of the business, Dekker said.
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Even with the hastened recovery, risk remained because operating costs could creep higher as activity increased and it was hard to predict what sports content will be available to stream in 2021.
Dekker said the outlook would remain uncertain until investors see a turnaround in premium subscriptions and Sky demonstrated its ability to stabilise revenue and right size costs.
"A very challenging transition given competition and Sky's dual-platforms," he said.