MARKET COMMENT: UK Equities Close Up, But BSkyB, ITV Dive

LONDON (Alliance News) - London's main equity indices may have ended higher Monday, but British Sky Broadcasting Group and ITV shares were hit hard after rival BT Group secured exclusive rights to show Champions League and Europa League football matches in the UK for three seasons.

BSkyB closed down 10% at 836.0634 pence, the biggest decline on the FTSE 100, even though it said BT had overpaid for the rights. BT announced over the weekend that it will pay EUR1.08 billion, or about GBP299 million a season, to show all the European club competition games from the 2015-16 season.

However, analysts said BSkyB, which built its subscriber base of over 10 million on the back of dominating UK football coverage, is going to face pressure on its high-margin pub and club business, a struggle to retain the premium it charges for its sports channels, and future tough competition for football rights.

"Having a competitor who is prepared to pay more than you, particularly one as deep-pocketed as BT, cannot be a positive," Berenberg said in a note to clients.

BSkyB was hit by a series of brokers downgrades, with S&P Capital IQ slashing its recommendation to Sell from Buy and cutting its price target by 33% to 700p from 1,050p. The brokerage said the UK's biggest pay-TV operator will now be extra keen to retain the bulk of the rights to show Premier League football and faces 50% price inflation on those rights as it gets into a battle with BT.

ITV, closing down 1.7% at 187.3132p, also came under pressure in the aftermath of the deal. The broadcaster will lose rights to show any UK club football from the start of the BT deal having recently lost out to the BBC on rights to show FA Cup games.

However, analysts were also uncertain about the impact of the deal on BT, which said the deal would be earnings neutral. The stock closed fractionally lower at 370.144 pence, despite some broker rating and price target upgrades.

The fact BT left its guidance unchanged suggests either immediate payback or that the company would have upgraded its earnings forecasts if it hadn't paid for the rights, JP Morgan analyst Carl Murdock-Smith told clients. It is unlikely the deal will pay for itself immediately, but either way Sky's hold over content is changing and the deal improves BT's historically poor positioning in TV, Murdock-Smith added.

Overall, London's equity markets ended higher Monday, buoyed by strong Chinese economic data over the weekend and as a global rally after surprisingly strong US data late last week continued.

The National Bureau of Statistics said Saturday that China's industrial production grew 10.3% year-on-year in October, slightly faster than a 10.2% increase in September, and ahead of consensus expectations of 10.0%. Growth in retail sales was solid, yet flat at 13.3% in October. In the first 10 months of the year, sales grew 13 % compared with the same period last year, NBS said.

The FTSE 100 closed up 0.3% at 6,728.37, the FTSE 250 closed up 0.5% at 15,420.36, and the AIM All-Share index closed up 0.1% at 810.94.

Markets generally were subdued due to the Veteran's Day holiday in the US which kept Treasury markets and banks shut, and similar holidays in some European countries. At the close of the UK equity markets, both the S&P and the DJIA were up 0.1%, while the Nasdaq was down 0.1%.

BSkyB wasn't the only big decliner in London Monday. RSA Insurance Group closed down 9.2% at 109.72516p after it warned that problems within its Irish business will result in its full-year operating profits being GBP70 million lower than the market had expected.

RSA has instructed PricewaterhouseCoopers to conduct an independent review into the group's financial controls, with results expected to be published at the end of the year.

The latest statement, issued after the market close Friday, comes after the company warned last week that it expects its full-year weather losses to be "materially above planning assumptions".

Analysts say uncertainty is likely weigh on the RSA share price until the results of the review are known. Shore Capital has downgraded the stock to Hold from Buy as a consequence of both issues, while Barclays has reiterated its Underweight rating.

Shire, closing up 2.3% at 2,859.00p, was one of the biggest gainers on the FTSE 100. The company has agreed to buy US rare disease company ViroPharma for about USD4.2 billion in cash, an acquisition that it expects to boost earnings straight away. In a joint statement, the companies said that Shire will pay about USD50 a share for the US company. Shire expects to achieve USD150 million in annual cost synergies by 2015 through the acquisition, over and above the cost savings it hopes to achieve through its ongoing restructuring programme.

Tuesday will be another busy day in the UK corporate calendar with blue-chips Vodafone, Babcock International and Land Securities joined by FTSE 250-listed BTG, John Menzies, Oxford Instruments, Synergy Health and TalkTalk, amongst others, in releasing interim results.

The data calendar will also be busier after the holidays. German consumer price figures are released at 0700 GMT, ahead of the Italian equivalent at 0900 GMT. Important UK CPI, PPI and RPI data is released at 0930 GMT. In the US, the Chicago Fed National Activity index is expected at 1330 GMT. Redbook index numbers are scheduled for 1355 GMT.

By James Kemp; jameskemp@alliancenews.com; @jamespkemp

Copyright 2013 Alliance News Limited. All Rights Reserved.