“In line with Sky, we assume DNZ will generate $10 million ebitda [earnings before interest, tax, depreciation and amortisation] from 2028, with limited downside risk, given the $1 acquisition price.”
Cost synergies provided a “credible path to profitability”, Craigs said.
“Sky will inherit a working capital tailwind from DNZ’s prepaid content, allowing it to expense programming without cash outlay for the first 12-18 months, boosting DNZ’s free cashflow contribution to a slight positive.”
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Sky is confident cost synergies can enable a $20m improvement in ebitda over the next three years.
Craigs maintained its “overweight” recommendation on Sky, with a target price of $3.63.
Forsyth Barr said it looked like a sensible deal for Sky TV shareholders.
“Consolidating legacy media makes strategic sense from both a revenue and cost perspective,” the broker said.
“Sky TV’s offering to advertisers as well as content providers will have strengthened meaningfully.”
Forsyth Barr retained its outperform rating with an increased price target of $3.55 (from $3.20).
Will rugby be the winner from the Sky TV-TV3 deal? Photo / Photosport
Leading rugby writer Gregor Paul also likes the deal.
“In making a $1, debt-free purchase of TV3 and its associated brands, Sky TV has not only made itself the kingpin of a revamped media sector, it has, for the next five years at least, dramatically changed the way Kiwis will be able to consume rugby,” Paul said in his Herald column.
AdvertisementAdvertise with NZME.Holding pattern
The New Zealand sharemarket looks to be in a holding pattern while other markets soar.
The S&P/NZX50 Index, which includes dividend payments, has lost about 2.4% in the year to date while the S&P/NZX50 Capital Index, which excludes dividends, fared worse – dropping 3.8% over the same period.
“It’s nothing to panic about or be particularly worried about, but it’s also nothing to be excited about for investors,” Craigs Investment director Mark Lister said.
“And the housing market probably looks quite similar.”
“It’s been a very lacklustre year.
“It has not fallen out of bed, but it hasn’t really gone up either – down six out of the past seven months.
“Whether you’ve been in New Zealand shares, whether you’ve been in New Zealand property, or whether you’ve been in commercial property, they’ve all been pretty flat to slightly down, which is in contrast to what we’ve seen internationally.”
So far this year, the UK market has gained 10%, the US 7%, Australia 6%, Europe 8% and emerging markets up 16%.
Lister said last year reaffirmed to investors the importance of international exposure.
“If you had been too hunkered down in New Zealand, you would have left money on the table, and it’s been the same again this year.”
Interestingly, New Zealand bonds have actually done better.
“So the boring stuff has performed better than the more exciting stuff in New Zealand, at least this year,” Lister said.
“And you’ve been better off if you’ve gone overseas, in terms of investing, so we’re still waiting for that recovery, both in the housing market and in the sharemarket.”
Expensive CBA?
Commonwealth Bank of Australia (CBA), Australia’s largest listed bank and the owner of ASB in New Zealand, has been a thorn in many active managers’ portfolios for a while, Fisher Funds portfolio manager – Australian equities Robbie Urquhart said.
It has the largest weighting in the ASX200 index, and its share price has had a stellar run, returning over 50% in the year to June 30.
“The problem for many active managers is that they’ve held CBA at a lower weighting than its index weight (over 10% of the index),” Urquhart said.
“So this share price performance has been a big headwind to overcome for managers seeking to ‘beat the market’.”
Urquhart said CBA is “unequivocally well run”.
“The reason fund managers have been underweight largely comes down to valuation.
“CBA’s earnings growth has been anaemic, and its share price move has been largely about multiple expansion.”
In other words, CBA has become expensive.
The big change we’ve seen on the ASX this month is that CBA’s share price performance has reversed, Urquhart said.
Buoyed by rising commodity prices, easing trade war concerns and talk of potentially large infrastructure projects in China, the beleaguered mining and resources companies have finally sprung to life.
Large, diversified miners BHP and Rio Tinto have returned 14% and 12% respectively in July thus far, strongly outperforming the index.
In contrast, CBA has been the casualty – falling 6%.
“This is suggestive of Australian investors selling CBA to fund buying in resources names,” Urquhart said.
“The big question is whether this is temporary, or the start of a more enduring trend.”
As the reporting season nears, all eyes will be on the results from Aussie heavyweights CBA, BHP and Rio Tinto.
24-hour trading?
London Stock Exchange Group is weighing up whether to launch 24-hour trading as bourses race to extend access to stocks amid growing demand from small investors active outside normal business hours, the Financial Times reports.
The group is looking into the practicalities of increasing its trading hours, according to people familiar with the situation, from the technology required to regulatory implications, the paper said.
Outlook
Looking ahead, Wednesday has annual meetings for Ryman Healthcare and Mainfreight, and the market will be expecting a heads-up from both companies regarding their expected earnings for the current 2026 financial year.
Ryman, which has been beaten up by the market over poor earnings and a couple of big capital raises, has seen its share price improve in recent weeks.
Mainfreight – with its strong links to the global economy – will also be closely watched.
Later in the week, second-quarter results from Apple, Amazon and Microsoft – a fair whack of America’s so-called Magnificent Seven – are due out.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.