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Questor: Sky shareholders have the luxury of sitting back and seeing which bid wins
Sky’s financial year ends on June 30 and its full-year results will probably come out in late July, although they are likely to be overshadowed by the continuing bid battle for the satellite broadcaster.
However, it is that tussle between the big media beasts of 21st Century Fox, Comcast and Walt Disney that gives investors every incentive to hold on to their Sky shares in determined fashion – especially as, at the time of this column’s first look at their cash flow (and takeover) potential in October 2016, the stock was trading at just 914p.
As a result, investors have the luxury of being able to wait and see what happens now that the Culture Secretary has cleared the bid from Comcast on competition grounds and given the green light to Fox too – provided that the Murdoch family vehicle sells Sky News as part of the process to preserve media plurality.
Fox has offered £10.75 a share and the Murdochs want the deal done so they can then sell most of that business, and Sky, to Disney in a $52bn (£39bn) deal funded in shares.
Comcast has, however, offered £12.50 for Sky and has also hinted at a new, all-cash offer for Fox in its attempt to both thwart Disney and defend its American turf in the event that the US courts clear the AT&T-Time Warner deal today and the US Department of Justice declines to appeal against the decision.
Sky shareholders may therefore need to keep their eyes on events in America, especially as the AT&T-Time Warner merger agreement expires on June 21. But even if that deal does collapse, Sky (and potentially Fox) will still hold strategic attractions for Comcast and Disney.
The chances of someone launching a knockout bid for Sky still seem good. Fox’s £10.75 bid puts a floor under the shares (and sits nicely above our purchase price) and with the broadcaster’s board obliged to get the best deal for shareholders it is possible that Comcast’s £12.50 is the minimum that will finally be offered.
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July’s results will at least give investors a chance to assess the company’s operational performance. After all, owning a stock purely for a bid is a bit of a mug’s game and any pick should be made on the basis that you like the company’s competitive position and strategy, rate its management, are comfortable with its finances and feel the valuation is appropriate.
If you don’t, the chances are that trader buyers won’t either and hence any sort of bid is unlikely.
The key to Sky will be assessing the copious cash flow that it generates from its loyal subscriber base. That cash flow funds fresh investment in the business, pays dividends and – ultimately – is what tempts any bidder.
Questor says: hold
Ticker: SKY
Share price at close: £13.51
Update: Mediclinic International
A promising trading update and rally in the shares to around 700p initially left this column in the pink with regard to its analysis of Mediclinic in March, but a messy set of full-year figures and imminent demotion from the FTSE 100 will be leaving investors in the private clinics operator feeling a bit more queasy.
The full-year numbers were admittedly mixed. The anticipated improvement in the South African and Middle Eastern operations was overshadowed by the cost of regulatory changes at the Hirslanden division in Switzerland, where the company booked £644m of impairment charges and writedowns. They left the group’s headline figures in the red even if the underlying numbers were perfectly solid.
Relegation from the FTSE 100 could prompt some technical selling as tracker funds cut their exposure but that will pass – and if anything it creates an opportunity to buy stock cheaply, as long as the business’s fundamentals remain sound, as this column’s experiences with Babcock, the support services group tipped in December last year, suggest.
Questor says: buy
Ticker: MDC
Share price at close: 543.6p
Russ Mould is investment director at AJ Bell, the stockbroker