SKY and Hold recommendation

[Nigel Bell]

I note that SKY is still down as a hold in the portfolio despite it being referred to European and UK authorities concerned with their influence in the media. It may be that the bid is approved at some later date although the chances of that happening are dwindling the longer it stays in this limbo. Meanwhile of course dividends have been suspended and it’s not clear to me when these will be reinstated. I recognise the huge reluctance to put a sell recommendation on any company in the portfolio but surely this is an example where a sell recommendation would make good sense. (And by and large I agree with that strategy but not exclusively).
Given that background and until recently the price was still up around the £10 per share mark surely the wiser course of action is to sell, realise the gains that have been made and reinvest in an alternative dividend bearing stock where the returns are likely to be more reliable. I have already sold my Sky shareholding at just under £10.00 per share and reinvested elsewhere. I think therefore my portfolio yield for this year and next will be enhanced as a result.

[Stephen Bland]

How you deal with SKY, or any share, is your call.

I cannot know whether the bid will eventually be approved or not though I don’t see why the annoyingly lengthy delay increases the likelihood of it being refused. But as I see it, continued holding offers worthwhile potential rewards whether the bid goes ahead or not.

If the bid succeeds then holders will receive 1,075p per share which is a return of about 110p or 11.4% over the current market price of 965p. That is substantially more than any dividends that could be earned from other shares over the time until the bid money is paid because I guess that period may be no more than about eight months from now at the latest. Additionally if the bid goes through but is delayed until 2018, SKY will pay a special final 10p dividend making the return 120p. Thus holding for a successful bid makes sense for a HYPer, even with the frustrating delay, but clearly it does carry the risk that the bid fails.

If the bid fails the price is likely to fall back but dividends should recommence at presumably around the figure of the last payout (though no guarantees of course) but the worst that happens is that holders are simply back to owning what I advocated as a worthwhile HYP share in the first place. Thus holding also makes sense here. The downside of a failed bid is that investors may, prior to assumed dividend recommencement, miss out on some dividends that were not paid under the bid terms whilst it was in progress. It’s possible in this case that the company might compensate us for those missed payments but they are not obliged to do so and the offer terms make no mention of this point. Nevertheless I’d say that continued holding is desirable.

So whether the bid finally succeeds or fails, doing nothing remains the optimum course for HYPers in my view.

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