RTL downgraded to “neutral” by J.P. Morgan on SkyD risks, forecast cuts

Investing.com -- J.P. Morgan has downgraded RTL (H:RRTL) to “neutral” from “overweight,” citing strategic and financial risks tied to its planned acquisition of SkyD, in a note dated Thursday. 

The brokerage reduced its price target to €40 from €43 and lowered its 2026 adjusted EPS forecast to €3.43 from €3.56.

The downgrade follows RTL’s 50% year-to-date rally, with the stock now trading at approximately 9x 2026E NOPAT, above the 7x multiple of its peers.

SkyD, described as a “hard boiled frog,” has failed to achieve breakeven after 35 years and now holds a standalone valuation of less than zero. 

J.P. Morgan noted that Germany remains a challenging pay TV market due to low consumer demand and ongoing competition from telecom providers and streaming platforms. 

The brokerage said SkyD’s history of losses and dependency on costly sports rights, such as the Bundesliga, poses structural risks to RTL’s earnings stability.

The acquisition, which sparked a 15% rise in RTL’s stock, was initially well-received for potential €250 million in cost synergies. 

However, J.P. Morgan cautioned that any financial gains could be eroded over time by competitive pressures and escalating content costs. 

The move also raises RTL’s exposure to multi-year content renewals and higher capital requirements.

Forecasts have been revised down across the board. H1 revenue is expected to fall 3%, with Q2 down 4%. 

Advertising and Fremantle are projected to decline 6% in Q2. H1 EBITA is forecast to remain flat year-over-year at €170 million. 

Full-year video ad revenue is projected to grow 0.4%, while overall advertising is now expected to shrink by 0.7%, revised from a 0.2% growth estimate.

J.P. Morgan also cut RTL’s full-year SVOD growth forecast from 44% to 30%, with 2026 growth now expected at 26%, leading to €660 million in revenue, below RTL’s €750 million target. Despite reduced growth, breakeven in SVOD by 2026 remains assumed.

The report also lowered Fremantle’s organic growth outlook for 2025 from 5% to 0% due to a weak first half.

Full-year revenue is projected at €6.38 billion, down from previous forecasts and below RTL’s €6.45 billion guidance. EBITA is cut to €771 million from €780 million.

RTL’s financials show a projected FY25 adjusted net income of €436 million and FCFF of €321 million.

The dividend yield for FY25 is expected to be 20.4%, while EV/EBITDA stands at 4.7x. The company maintains a strong balance sheet with no net debt.

J.P. Morgan said that while RTL continues to invest in RTL+ and digital bundling strategies, the SkyD acquisition could dilute business quality and increase earnings volatility.