Sky drops as EPL pricing soars, but UBS hails a "good outcome"

Shares in Sky dropped on Wednesday after the news that the company had paid 83% more to retain the majority of Premier League (EPL) rights in the auction for the 2016/2017 to 2018/2019 seasons.The market had expected a 45% increase in pricing compared with the current contracts, so the £1.39bn-per-annum (pa) price tag for Sky was poorly-received by investors.BT, meanwhile, is paying £320m per annum for fewer rights, representing a 30% jump in costs on last time.However, despite these concerns, analysts at UBS decided to reiterated their 'buy' rating on Sky, saying that investors should be pleased for a "good outcome" to the EPL auction."Although the EPL costs for Sky are higher than expected, Sky has secured a better set of EPL rights," the bank said."The split of games is broadly similar with 75%/25% for Sky/BT. However, Sky now have 68% of the first pick matches each week (vs 53% currently) and 82% of the second picks meaning they will show the best two games in most weeks. Sky will also show the bank holiday matches that typically attract a higher audience."Overall, Sky will show EPL matches on Friday evening, Saturday lunchtime, Sunday afternoon and evening and Monday evening, and "the breadth of EPL games should help cushion the loss of Champions League games on Tuesday/Wednesday," UBS said.The bank also highlighted Sky's planning £200m pa of net cost savings, plus £80m pa of Champions League rights savings, as well as the scope to raise pricing on Sky Sports. As such, there should be a net neutral impact on consensus forecasts following the auction, it said.UBS said it still views Sky as "cheap", trading on just 13 times calendarised profits for next year while offering at least 20% pa growth in earnings per share."Despite higher-than-expected EPL cost, we expect Sky shares to re-rate as the focus shifts from EPL overhang to future growth."UBS kept a 1,200p target price for the shares, which were down 4% at 915.5p by 09:40.