BSkyB spins up and up as pundits go into orbit

PLANS to float Rupert Murdoch's satellite television business BSkyB on the stock market have got off to a superlative start. The float - the biggest-ever non-privatisation - was announced only on Thursday, but already a consensus has been established that the company is worth about pounds 4.5bn, give or take a billion. And everyone so far has kept a straight face.

Mr Murdoch's own newspaper, the Times, said the float was expected to value BSkyB at between pounds 4bn and pounds 6bn. The Financial Times, whose parent, Pearson, also has a BSkyB stake, suggested 'just under pounds 5bn'. The Daily Telegraph opted for pounds 4bn, our sister the Independent 'up to pounds 5bn', and the Guardian 'about pounds 4.5bn'.

Already the figure of pounds 4.5bn has gained currency as eminently reasonable. Yet this values BSkyB ahead of giants such as Thorn EMI, Reed International or Cadbury Schweppes. It means that BSkyB would only just be pipped by combining the two biggest TV groups, Carlton Communications and Granada Group. Even the mighty ICI would be smaller if the upper estimate of the Times is to be believed.

Not bad for a company that is less than 10 years old, has virtually no profits track record, and was considered a complete basket case when it was cobbled together out of the corpses of Sky and British Satellite Broadcasting in 1990.

The company is difficult to value, of course, but it has two enormous attractions. It is growing very, very fast. And it is unique - years ahead of any other UK non-terrestrial broadcaster. Even so, a price tag of 40-plus times historic earnings and 10 times sales is expensive by any standards.

Institutions will require a lot more convincing. It is only a few months since the TeleWest cable float was pulled in this country. American investors, who are used to injecting billions into cable TV companies that have never made a penny in actual profit, are likely to be more comfortable with such valuations.

The problem of valuation is compounded by the fact that there are few independent analysts not compromised in some way or other. Virtually every London and New York securities house has been pitching for business from BSkyB in some shape or form - in some cases vying with one another to come up with the most flattering view of it.

Goldman Sachs and Lazard ended up with the cream appointments of joint advisers and co-sponsors. But I understand that Hoare Govett, Barclays de Zoete Wedd, Cazenove and Warburg are taking part in the flotation, too. Among them they employ many of the best media analysts in the business. A platoon of Wall Street houses is lending support in the United States.

The advisers will have to get cracking to get the float done by Christmas. It won't be an easy ride. The appetite for paper is hardly voracious, after the recent spate of new-issue flops. On Friday the commodities group ED&F Man, one of the biggest floats this year, joined the dozens of debutants now trading below their issue price.

There are plenty of uncertainties ahead for BSkyB: the impact of pay- per-view TV sent down the phone line; the threat of regulation from a future Labour government. But these are largely outside the company's control.

By contrast, it can and must clarify two investor worries in the prospectus. The first is a clear, preferably audited statement of the actual number of subscribers and how the figure is calculated. BSkyB has repeatedly boasted figures that are higher than independent researchers have expected. BSkyB needs to be much more open about how the figures are compiled if it is to dispel a healthy scepticism. Its use of inertia selling techniques, as reported here last month, only adds to the suspicion.

The second concern is the security of the system. Pirating of the smart cards, which subscribers use to unscramble the TV signal, is rampant. BSkyB is pursuing alleged pirates in no less than 10 different court cases. Security is constantly being breached, enabling some viewers to see Sky for free.

If Goldman and its fellow advisers can overcome these concerns, and if they can really wrest a pounds 4.5bn price tag from investors, they will have earned their doubtless colossal fees.