Should You Buy British Sky Broadcasting Group Today?

LONDON -- Shares in home entertainment giant British Sky Broadcasting Group  (LSE: BSY  ) have edged consistently higher in recent months, and the stock is up almost 13% since the turn of the year and took in in record highs just below 900 pence in the process.

The prospect of heavy competition from BT Group has prompted fears of potential revenue slowdown in future years, with its rivals' new sports offerings helping to spearhead its challenge to BSkyB as the U.K.'s foremost "triple services" provider across the television, broadband and telephone spaces.

Battle lines drawn to tackle BT
However, BSkyB is not standing still as it tries to stay ahead of the competition. The company launched its Now TV service on a pay-as-you-go basis in March, allowing non-Sky customers to access the firm's sports programming for a fixed 9.99 pound fee for 24 hours' viewing.

It also launched its dedicated Sky Movies Disney late last month, following on the heels of Sky Movies 007 last year and giving the firm exclusivity to a catalogue of the studio's future and past films for at least 12 months.

As well, the broadcaster significantly boosted its broadband proposition late last month by buying Spanish operator Telefonica's O2 and BE consumer broadband and fixed-line telephony businesses in the U.K. for up to 200 million pounds.

The move adds half a million customers to its existing stable of 4.2 million broadband and four million telephone consumers, and seals BSkyB's position as the U.K.'s fastest-growing broadband and telephone provider and Britain's second-biggest broadband firm. The deal also leaves the firm in a good position to boost its existing 3.6 million "triple play" clients.

Dishing out decent shareholder payouts
City analysts expect earnings per share to rise 12% in the year ending June 2013, to 57 pence, before rising an additional 5% next year to 60 pence.

BSkyB is liked by income investors because of its progressive dividend policy constructed over a number of years, and last year's 25.4 pence payout was increased 9% from the previous year. And forecasters expect this to rise to 28.6 pence and 30.9 pence in 2013 and 2014, respectively, carrying yields of 3.3% and 3.6%, just above the FTSE 100 average. As well, these payments are well protected with coverage around the regarded safety watermark of two times.

As well, the firm is committed to returning cash to shareholders through an active share buyback program, and in November received approval to purchase up to 500 million pounds of more shares. The company repurchased 414 million pounds of shares in the six months to the end of 2012.

The broadcaster currently trades on a P/E rating of 15.2 and 14.4 for 2013 and 2014, respectively, representing a slight premium to a prospective earnings multiple of 12.1 for the wider media sector. However, I believe that the firm's stellar record of delivering steady earnings growth, combined with its commitment to returning cash to shareholders, justifies this higher rating.

The canny guide for clever investors
If you already hold shares in British Sky Broadcasting Group, check out this newly updated special report which highlights a host of other FTSE winners identified by ace fund manager Neil Woodford.

Woodford -- head of U.K. Equities at Invesco Perpetual -- has more than 30 years' experience in the industry, and boasts an exceptional track record when it comes to selecting stock market stars.

The report, compiled by The Motley Fool's crack team of analysts, is totally free and comes with no further obligation. Click here now to download your copy.


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