Sky Network Television Ltd (ASX: SKT) is an ASX small-cap company that operates as the sole traditional, set-top-box-based pay-TV service operator in New Zealand.
It distributes local and overseas content, including sports, to its customers via a digital satellite network.
It has attracted an optimistic price target from broker Macquarie after already rising 21.10% YTD.
Lets see what the broker had to say about this ASX small-cap stock.
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FY25 result in line with guidance
Last week the company released FY25 results which included:
- Operating revenue of $755m (-2% on pcp)
- Adj EBITDA of $148.5m (-3% on pcp)
- Adj programming costs $384m (-$7m on pcp)
- Adj NPAT $41.1m (- 16% on pcp)
- Dividend 22.0s (19.0cps in pcp)
Macquarie's analysis of Sky Network Television shows that FY25 results were in line with guidance, with revenue down 2% due to economic pressures, though growth areas like Sky Sport Now, Broadband, and Advertising contributed positively.
Despite reduced programming costs and disciplined expense control, earnings declined slightly as growth investments outpaced cost savings, and programming costs were front-loaded due to Olympic and one-off amortisation impacts.
Price target sparks optimism
The broker has placed a price target of NZD $3.56.
It's important to note that Sky Network Television's primary reporting currency is NZD.
When issuing target prices, analysts usually use the company's base currency for consistency with its financial reporting, earnings, and valuation models.
Based on yesterday's closing price of $3.15 NZD, the price target indicates an upside of 13%.
In its report, the broker said Sky Network Television is one of the most undervalued stocks on the NZ market, especially if it delivers on its published 3-year plan: revenue CAGR of 1-2% (at risk given weak FY25), a sustainable EBITDA margin of 21-23%, reduce programming costs as a percentage of revenue to 47-49%, and return capex to 7-9% of revenue.
Macquarie suggested these factors support a doubling of the FY23 dividend of 15cps by FY26, and a further lift in FY27.
We believe SKT is delivering on this strategic plan, with a growth plan that leverages its proven content advantage. While cognisant of the value of the satellite subscribers, SKT's more recent investment in technology and enhanced streaming services, together with refreshed pricing, means that it is becoming increasingly agnostic as to the content delivery platform selected by its subscribers.
