Valuing Sky PLC As Comcast Enters The Acquisition Race

There is an interesting situation developing in the media sector, pitting telecom and media giant Comcast (NASDAQ:CMCSA) against other media behemoths including 21st Century Fox (NASDAQ:FOX) and Disney (NYSE:DIS). Fox had agreed to buy Europe’s Sky PLC for GBP 10.75 per share, but has been facing regulatory hurdles as authorities believe that the acquisition would give Fox too much influence over media in the UK, which forms a significant portion of Sky’s operations. Now Comcast has announced that it is willing to pay GBP 12.50 per share – over $30 billion – for Sky, an offer that stands more than 16% over Fox’s bid. This will remain an area to watch going forward, but also raises the question of who is valuing Sky PLC correctly. To understand its valuation better, we have created an interactive dashboard that shows how changes in its customer base, subscription fees, margin and P/E multiple can impact Sky’s valuation. 

Closer Look At Growth, Key Metrics

Sky’s growth has been steady, so there is likely little room for variation in terms of expectations for 2018. Our base case forecasts Sky’s total customer base to reach 23 million in 2018, implying a total subscription product count of 61 million. With expected average fees per subscription product per month of nearly GBP 18.50, this translates into revenue of GBP 13.6 billion for 2018, and EPS of GBP 0.43. At a P/E multiple of nearly 25.5, this translates into a price estimate of nearly $11, which is close to what 21st Century Fox is offering. It appears that Comcast is offering a forward P/E multiple of over 29, suggesting higher expectation for future growth, or a higher degree of potential synergies. Compared with some other satellite companies, the price that Comcast is offering is a bit on the high end. For comparison, Dish Network has a P/E multiple of 25.