Sky’s performance across 2021 significantly improved, driven in Q4 by a nice c.5% growth rate in UK consumer revenues and the advertising rebound, but effects of the pandemic are still being felt with EBITDA down 30% on 2019.

The decline in Group revenue accelerated in Q4 due to the severe shock to the Italian operation from its loss of most premium football coverage, although we see upsides in a possible rights reshuffle.

In 2022, Sky can leverage growth vectors including bigger content bundles, Glass, advertising innovations and broadband. Consolidating SVOD and telecoms markets may be more favourable to price increases.

Press reports suggest that the restrictions on Huawei equipment may morph into a full ban, with new installations stopping soon and existing equipment to be removed by 2029.

The direct ‘tear-out’ and replacement costs for mobile would be very high at up to £2bn, and there would be significant disruption to 5G roll-outs as operators’ focus moves to replacing what they already have as opposed to pushing into new coverage areas.

Previous rules applied to fixed line broadband networks with as much force as mobile; having to replace Huawei broadband kit would almost certainly delay the move to ‘full fibre’, for no good reason even according to the government’s own report.

 

 

Despite operating in a challenging market, Sky has continued to increase revenues, with the resilient performance of its direct-to-consumer and content businesses offsetting the disappointing drop in advertising income.

Across FY 2019, EBITDA was up 12.2%; profit growth driven by a significant reduction in “other” costs as large one-off effects disappear and cost-cutting continues.

Extended distribution deals with Netflix and WarnerMedia will protect Sky’s content proposition for the coming future, as would the mooted integration of Disney+.