Jefferies

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SKY Materially Undervalued, with or without Merger Approval – Upgrade to Buy

— Jerry Dellis, Equity Research Analyst, UK & European Telecoms

Sky (SKY LN) is trading ~10% below the FOX offer recommended last December. While this suggests risk of deal failure, Jefferies believes UK approval prospects are favorable given the principles established in previous reviews. Standalone Sky prospects have been enhanced by Wholesale Local Access (WLA) proposals (creating a potential £130-140 million saving for Sky by FY20/21) and BT/Virgin travails. This supports a new 1200p fair value and leads us to argue that shareholders could hold out for a better offer. FULL REPORT