Weekly, Sky TV | Summerset | Woodside | Shopify

13 October 2019

Weekly Report

Here’s your weekly update of news, analysis and research. The full reports can be read on the stock pages.

Sky TV shares continue to plummet, after losing rights to broadcast domestic cricket matches to new sporting
rival Spark Sports. However, Sky have negotiated a deal to keep international cricket rights for the next four
years, including the 2023 cricket world cup. The news shows Sky TV’s content is slowly shrinking, losing its
sporting monopoly as it missed out on the Rugby World Cup to Spark as well. As announced earlier, Disney
will be pulling its content from Sky and entering into the NZ market with its own streaming service Disney+.
Sky TV has been struggling against competition in the past and digital disruption, but now due to its lack of
content it can only longer charge the premium price it used to, and with subscribers already falling it may
struggle even more. Large competitors such as Spark are able to operate at a loss in order to price out Sky TV,
given streaming represents a small part of their overall business. Increased competition and shrinking content
likely imply Sky will be forced to lower its prices significantly in order to offer better value streaming services.
Our outlook continues to remain negative – as we believe Sky won’t be able to reach critical mass on its
streaming subscribers to offset the loss of its higher-valued satellite subscribers to cover its high fixed
programming costs (which will only get more expensive at each renewal). There is potential that a large
industry player may buy Sky, although we would not by Sky shares simply on the hope of a takeover.

SUM shares jumped after releasing a better than expected third quarter sales update, which is pleasing given
we recently upgraded our rating on Summerset to a BUY. Summerset sold 165 occupation rights in the third
quarter of 2019, which was up +11.4%, driven by strong resales of 88 units compared with 66 in the same
corresponding quarter last year. We previously had a negative view on the property market, but now believe
the market is more likely to remain stable after significant interest rate cuts by RBNZ and RBA this year. It
appears less likely NZ will experience a continued property boom and at the same time a crash from here on
out, so Summerset’s margins on resales will start to moderate, and earnings growth will be hinged towards
development activity. The Aussie property market also looks to be stabilising, with SUM set to expand across
the ditch. Our view on Summerset’s business remains positive as a benefactor of a rise in ageing population
tailwind, as well as a more stable outlook on the property market over the medium-term. Despite the recent
share price rally SUM continues to trade at a relatively attractive valuation of 1.4x Net Tangible Assets (NTA)
(compared to the last two-years of around ~2x NTA). We remain BUY rated.

WPL shares have been heading downward recently due to negative oil price movements, and escalations over
the US-China trade which has a negative impact on oil producers. WPL’s shares were also lower after delivering
a weak profit result for the first half of the 2019 financial year despite previously guiding to weaker production
levels due to major maintenance works taking longer than expected. WPL’s net profit after tax for the half
came in at $419m, which was down -23% from last year. This was due to the impact of tropical cyclone
Veronica, the planned maintenance at Pluto LNG, which lowered production volumes significantly by -12%
from last year down to 39 MMboe (Million Barrels of Oil Equivalent), as well as increased production costs
associated with the maintenance work. These were partially offset by a +5.6% higher realised LNG price driven
by strong demand and better production output from other major LNG plants. WPL remains our preferred
energy sector pick, with most of its exposure in LNG which is expected to see increased demand that will
create a supply shortfall in 2020, with demand expectations rising as new market opportunities continue to

be uncovered. WPL offers a healthy 6% dividend yield, which is likely to grow over medium-term which and
the recent pull back creates an attractive entry point as the negativity is largely one-off/short term in nature.
Fundamentally we continue maintain our positive view, with WPL being our top energy sector pick.

Shopify (SHOP:NYSE) BUY (High-Risk): Amazon’s New Competitor?
Shopify shares have surged this year, up +126% in 2019 even after its recent pull-back recently as the market
questions its “slower” revenue growth rate and capital raise for expansion investments. Shopify’s share price
keeps rising as is continues to delivery solid quarterly results, with 2019 second quarter revenue coming in at
$362m, up +48% from last year, which once again beat market expectations. The source of Shopify’s success
is attributed to the booming online retail industry (which is plaguing many major brick and mortar stores), and
the quality product offering and scalability of how it generates revenue from its merchant, both in the very
popular subscription model method but also on percentage of sales transacted, and for additional ecommerce
related services Shopify provides. Shopify’s recent acquisition of 6 rivers appears promising as it looks to
expand it offering to merchants including shipping and warehousing fulfilment in an attempt further growth
the business and to start to compete with Amazon. We maintain our High-Risk BUY rating on Shopify. Shopify
is clearly a stock suitable for investors with a high-risk tolerance and a medium-term view. Buying the stock
will depend on whether you believe in the Shopify “growth story” as a tech stock which potentially has a lot
of room to grow in a large global market. Shopify shares aren’t cheap, but the recent pull-back might create a
some-what attractive entry point if their growth story continues.

Stock ratings
Given the dynamic nature of share prices ’s rating can become out of sync with the projected total return as the share price moves. The rating
must only be viewed as valid with respect to projected total return at the time of rating or target price changes.
Individual stock ratings are determined by the projected total return on a stock.
Based on a current 12 to 36- month view of total share-holder return (percentage change in share price from current price to projected target price
plus projected dividend yield), we recommend the following:
BUY: Based on a current 12 to 36-month view of total share-holder return, we recommend that investors buy the stock
SELL: Based on a current 12 to 36-month view of total share-holder return, we recommend that investors sell the stock
HOLD: We take a neutral view on the stock 12 to 36-months out and, based on this time horizon, do not recommend either a Buy or Sell
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