LONDON (ShareCast) - Shares in BSkyB took a knock after JP Morgan double-downgraded its rating on the satellite broadcaster to ‘underweight’ from ‘overweight’ and cut its target price on the stock to 560p from 700p.

The broker said that advertising revenues are at risk amid a gloomy macro-economic outlook, adding that product sales are also slow.

“We think high-margin advertising revenues could slow given the deteriorating macro environment,” JPM said

“Further, on our analysis, high margin revenue streams are underperforming. For example, Multiroom and HD net adds have slowed recently. We see risk of increased investment or lower prices/bundling discounts for high incremental margin products.”

JPM also feels that the benefits of broadband to company’s pay TV business have also played out.

“We think broadband helped stimulate pay TV gross additions, but that the peak run rate of gross adds is falling,” it said.

“With a deteriorating UK consumer environment we see risk of this continuing.”

JPM added that BSkyB’s share price does not reflect the possibility of regulatory problems.

“Ofcom is now considering the conversion of Sky’s free DTT channels to pay, together with the pay TV industry review, and has delayed findings till summer 2008,” it said.

“We see the worst-case scenario as lower wholesale premium content pricing, but note that any changes are not yet known and it is impossible to gauge the review outcome.”

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