Sky
Revenue £8,453m, up 5%
Shares in Sky have not been at their present level since 2001. From an investment point of view, they are a straight bet on how long the satellite broadcaster can continue to increase customer numbers, sell them an increasing amount of content and persuade them not to go elsewhere.
Sky is seen as a go-go media stock, but it resembles a boring utility. You get beyond a certain subscriber base and, providing that you source what you sell them properly, whether it is water, power or television programmes, it is almost impossible to lose money.
The company passed that stage some years ago and there is nothing in the nine-monthly figures to suggest that growth will not continue. It added 242,000 new customers in the third quarter, traditionally a quiet one, up 70 per cent over the same period in 2014.
Last year Sky bought Sky Italia and a majority share in Sky Deutschland to give it access to 100 million households, as opposed to the 26 million in the UK. Jeremy Darroch, the chief executive, indicated that in due course he saw the potential to put up prices in both countries.
The company has already hammered through two price increases in the past year, bringing forward the traditional September increase to June. There is a lot about making more original content available, such as the baffling Fortitude, but this has much to do with the £4.2 billion Sky that had to pay for its share of Premier League coverage.
This raises the one main concern the bears have. Will customers put up with these higher prices, or will they cancel their subscriptions, thereby increasing the churn rate? Sky insists there is no sign of this happening; the churn rate was down year on year in all three territories, barely 10 per cent in the UK and Ireland.
Plainly, the growing British economy is proving beneficial — luxuries such as subscription TV are generally among the last to be cut from the household budget.
Sky shares, which jumped 53p to £11.05 on the better-than-expected figures, yield about 3 per cent and sell on more than 20 times earnings. That is a chunky multiple and I do not see much scope for immedite outperformance, but it would be a brave investor who bet against that growth continuing.
My advice Buy long term
Why Sky is well run, highly cash-generative and there is plenty of potential for future growth, especially in Italy and Germany
Tate & Lyle
£16m Profit from sucralose in FY15
Tate & Lyle had put the market on notice that some sort of action was to be expected on its sucralose artificial sweetener business, but a straight exit from a product that the company has been working on for four decades probably would have been too hard to bear.
Instead, Tate is moving production out of Singapore and making it entirely at its plant in Alabama. Sucralose has been hit by a price war prompted by cheaper production in the Far East; the company gave an idea yesterday of the damage done, with profits down 75 per cent to just £16 milion in the year to the end of March and a probable break even in the current financial year.
At the same time, Tate is pulling out of bulk sweeteners in Europe by exiting a joint venture with Archer Daniels Midland, retaining a factory in Slovakia that is more focused on speciality food ingredients. This is where the focus will be in future, providing 55 per cent of turnover.
The restructuring is not quite as drastic as the decision to exit sugar in 2010. It will dilute earnings by an estimated 10 per cent in the current year, analysts believe. The company is promising to pay a 28p final dividend in the last financial year and the present one, although that earnings dilution reduces cover to about 1.3 times.
It does provide the shares, off 11p at 642½p, with the support of a dividend yield of 4.4 per cent. The main question is whether all this prompts the long-rumoured approach from Bunge, the American agribusiness. The shares are worth holding for that income alone.
My advice Hold
Why Yield is attractive; bid may even materialise
Pets at Home
Revenue £729m, up 9.6%
Pets at Home has signed up 3.2 million animal lovers to its VIP club loyalty scheme, adding more than 270,000 in the first three months of this year and accounting for two thirds of revenues.
The growth is coming from services such as grooming and
claw-cutting, the 53 per cent of stores that have their own in-house vets and from high-margin advanced nutrition products. Those services get people into Pets at Home stores and hopefully they then pick up other products, rather than buying them online or at the supermarket.
The company has 400 stores and hopes to get to 500, adding them at a rate of about 25 a year. It also wants perhaps a quarter of the country’s veterinary fees, both in-house and in standalone practices.
Revenues for the year to the end of March were up 9.6 per cent and earnings will be in line with market consensus. The shares were poor performers last year, but are back above the 245p issue price, although they lost 2¾p to 255½p on the trading update.
They sell on almost 19 times earnings, which looks up with events for a specialist retailer, despite that potential for long-term growth.
My advice Avoid for now
Why Earnings multiple looks about right
And finally . . .
The AIM-quoted IQE is a leader in its area of technology — gallium arsenide wafers that go to chip makers — that is not always appreciated by the market. Its trading statement for the first quarter was positive, showing multiple new long-term orders from a number of customers, after a good result in 2014. Peel Hunt, its house broker, has forecast a significant rise in cash generation in the second half of next year, by which stage the shares may have attracted some new friends.
