SHAREHOLDERS in British Sky Broadcasting, the satellite television

venture, have come down to earth since the company made its stock market

debut in London and New York on December 8.

The shares had been offered at 256p, which was at the top end of the

previously disclosed range of 233p to 268p because of the heavy demand,

and immediately went to an 11p premium. Yesterday, though, they fell 10p

to around 245p despite some bullish news about the level of subscribers.

Not too much should be read into this perhaps but there were analysts at

the time who felt the issue was over-priced.

There was, however, plenty of cheer from Sky Television so far as

viewing figures are concerned. It has added a net 180,000 direct to home

subscribers in the last three months of 1994. Of these new subscribers,

more than 70% have signed up for all Sky's premium channels and are

paying the top monthly subscription rate of #22.99.

The company reports that the high level of sales in this period has

included a new record for a single week's sales of 37,241 which was

achieved in the third week of December.

Sky's home subscriber base has increased by 7% from 2.64 million to

2.82 million over the three-month period. At the same time, there has

been a decrease in the level of subscription cancellations from 12% in

the second six months of 1993 to 10% in the second half of 1994, despite

the October 1994 price increase. For December alone, the cancellation

rate was 7% compared to 8% a year ago.

Research figures for January also show that the total number of homes

that subscribe to Sky is above four million for the first time.

It all sounds pretty healthy. As Sky TV's chief executive Sam Chisholm

points out, the growth in subscriptions, in part at any rate, is a

result of an enhanced profile as a result of the recent successful

flotation.

Yesterday morning, though, BSkyB was the second most actively traded

stock as sellers emerged. It was the penultimate day of the shares

stabilisation period during which advisers buy and sell shares in the

market to smooth out initial volatilities.

However, stockbroker Henderson Crosthwaite's sector analyst yesterday

issued a sell recommendation suggesting that the #4400m valuation put on

the company at the 256p offer price was too high.

It considers that without market support, the share price will decline

to the 200p level, where the market capitalisation would be #3400m,

though Henderson itself values BSkyB at only #2600m. The analyst

considers that the company will be unable to sustain the rate of profit

growth implied by a market valuation of #4400m.

That said, dominance in the two most lucrative areas of subscription

TV, films and sport, is expected to ensure success. It is not the

company, but the value placed upon it that is criticised. This caution

stems from profits depending on continuous growth in penetration via

cable and satellite. On that score the projections for penetration by

Henderson's analyst are lower than most market estimates.

Sky penetration is forecast to rise to 27% of homes by 2000-01 from

15% in 1993-94.

There are also worries that competition from the cable industry and

future terrestrial TV will drive programming costs higher with few

potential high earning new services that could be added.

It is argued that new services will anyway be more expensive to

introduce and constraints on the capacity to add new services will make

it harder to introduce price increases which are more acceptable to

subscribers if a new package is being sold.

Caution is also expressed about what happens early in the next century

when there is a big jump in programming costs as a result of the

renegotiation of the film contracts. It could lead to a period of profit

stagnation or decline as the company adjusts to the new cost regime

though this risk could be offset by judicious investment of cash flow.

Forecast profits for BSkyB for 1994/95 are #194m, rising to #264m the

following year and #321m 1996/97.

Henderson's assessment of BSkyB's prospects and valuation may be

somewhat less than the general market view and may well be wide of the

mark. However, some of the the initial euphoria after the marketing hype

was bound to wear off.