Credit Suisse has increased its earnings per share estimates for British Sky Broadcasting by 5% in 2013 and 2014 after updating its forecasts to take into account recent results, mergers and acquisitions and share buybacks.

"We raise our target price to 800p from 610p, which reflects both the earnings upgrade and the 30% re-rating of European Media over the last six months," the analyst team said.

Credit Suisse said that it remained "relatively cautious" on Sky, adding that key investment risks flowed from the maturity of the UK Pay TV market and intensifying competition both in basic TV from YouTube and in movies from Netflix, Amazon and blinkbox.

"These are likely to put pressure on Sky's margins and return on capital in the medium-term as the company invests to sustain its strong market position and to grow.

"Balancing this, we acknowledge Sky's management team and track record of innovation is second to none in the industry and that the strong cash-flow generation, modestly levered balance sheet and supportive shareholder base give the company substantial financial flexibility to counter the challenges it faces."

With regard to BskyB's valuation, Credit Suisse said: "At our target price, the stock would trade at a 10% discount to European Media on projected 2013 calendarised price-to-earnings basis (13.6x vs 15.3x)."

British Sky Broadcasting Group's shares were down 0.84% to 881.50p at 11:01 on Thursday.

MF

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