SKT Sky NZ, $1.16. I think it is worth nearer $2.50 on current earnings and cash flow at a quick glance, but a fair bit of debt and consistently falling earnings put me off. A definite potential contrarian turn around play.
CROIC is not bad either, above 10%.
What would earnings have to drop to for $1 something to be fair value? My guess is under 10c EPS, thats a significant amount less than current earnings, in fact its half the guidance for 2019.
Its hard to see a near future where SKT isnt a viable business in NZ, they have 40% penatration and while the Netflixs of the world will eat away at their margins and revenue with a high quality and real NBN, as long as they have the rights for sports they will survive. So what are the odds of sport going to streaming? Well I dont think its happened on a national scale anywhere in the world so far, but it could happen.
The Rugby world cup should give them a bump in revenue for first half 2020, NZ is such a rugby mad country and the World cup is in Japan in October.
The market hated the impairment writedown last year, and I would imagine there are more of them to come, so that is a potential negative,
On the upside a price of $2.50 is not a stretch if they meet guidance, so probalistically, maybe a 10% chance of sport moving totally to streaming seeing a collapse of the business , 10% * 0 =0 plus a 20% chance they meet guidance & impair again, 20% * $1 = 20c plus a 60% chance they meet guidance, no impairment and market rerates - 60% * $2 = $1.20 and 10% chance they exceed and market rewards 10% * $2.50 = 25c for a total expectancy of $1.65
- which is a reasonable return.
Trouble is this sort of calculation is so wooly, I could easily modify, 10% * 0, 50% * $1.20 (no change) , 20% * $2, 10% * $2.50 for a total of $1.25 - about where it is now.