(ticker BSY:LSE)
Unless you have had your head buried in the sands of a beach in Thailand
This fall in its share price from 850p pre-scandal to what touched 700p today, led me to look into whether this stock could now be a cheap purchase for a long term investor. To look at this, let me give you some background information. On the 14th June last year, the share price was trading at 600p until BSKYB announced they would offer 700p for the remaining 61% stake in BSkyB that NewsCorp does currently not own. As you would expect, the share price rocketed within seconds to 700p. This price was suggested to be too low and since this announcement the share price has steadily risen in line with speculation that Murdoch’s empire will indeed make an improved bid, eventually causing the stock price to push up to 850p.
Whilst the rest of the market has been busy shorting the stock, I’ve been looking to go the other way. Chrispin Odey, a very significant long-term investor of BSkyB, shares this view and has been busy buying back into the television company in order to prevent Murdoch “to get in on the cheap”. The reason for this is that news of the scandal has now removed the ‘bid premium’ from the price. We are now nearing a price that we saw in June last year, which reflects the previous point. Why I see BSkyB as a good buy is there is still a fair chance the deal will go through. Murdoch was very quick to remove his offer so that the deal would now be referred to the Competition Enquiry, which MP Jeremy Hunt announced yesterday. Why did Murdoch do this? Simply to buy him time. An enquiry of this scale typically takes around six months. That is six valuable months Murdoch has bought back to allow this scandal to settle that could eventually allow him to proceed with the bid. Even if the bid never did happen, analysts suggest BSkyB is a very healthy company that performed well during the recession. Some reports even suggest they will double their earnings over the next five years.
Of course, there is the other side to the coin. The criminal investigation of the ‘News of the World’ is in a very early stage. It could well be possible that NewsCorp, owner of NOTW, could be forced to reduce its stake in BSkyB if the communication regulator decides it is not fit and proper to control a broadcasting license. Clearly, if this happened the share price could quite easily fall.
Where do you lie on the matter? For me, the upside massively outweighs the downside to this.
Jamie Ward
