By Kate Holton
LONDON (Reuters) - Pay-TV group BSkyB reported strong first-quarter earnings growth on Thursday as price rises and the sale of additional products to subscribers helped reassure investors who had been fearing a slowdown.
BSkyB, which sells pay-TV, broadband and telephony, has launched an online offering and promoted new products to existing customers after the heady rate of subscriber growth seen in previous years started to drop off.
The solid performance will likely please investors gathering later in London for the group's annual general meeting, where director James Murdoch will make his first public appearance since he stepped down as chairman over a phone hacking scandal at his newspaper group.
Shares in BSkyB were up 3.8 percent in early trading, against an otherwise flat FTSE 100 Index, after they slipped in the run up to the results. The group is now valued at 12.1 billion pounds ($19.49 billion).
"BSkyB's first-quarter numbers were solidly reassuring, with all key metrics showing improvement over Q1 2012," Peel Hunt analyst Patrick Yau said in a note.
"We see this as a robust start to the year for this defensively positioned company. We remain comfortable with our forecasts for now."
In the first three months of its new financial year, BSkyB signed up 48,000 new households, in line with forecasts, with 20,000 additions to the core pay-TV offering.
That is someway off the often 100,000-plus pay-TV subscribers it used to sign up per quarter, but the group said one in three of its customers now took TV, broadband and telephony services, which helped to lift the average amount each customer spent with the group.
Customer loyalty also remained strong, despite the first price rise in two years kicking in.
"Despite market fears over new competition, TV adds continued to grow with 20,000 net adds," Morgan Stanley said in a note to clients after the results were announced.
"This puts into perspective recent concerns that Sky might suffer a fall."
Chief Executive Jeremy Darroch said the service had enjoyed strong demand from customers for its sports programming over the quarter, including Europe's success in the Ryder Cup and Andy Murray's win at the U.S. Tennis Open.
The solid operating performance, the price rise and a share buyback programme helped lift earnings per share 16 percent to 13.4 pence, while revenue rose 4 percent to 1.7 billion pounds and adjusted operating profit climbed 5 percent to 310 million pounds.
All three numbers were either in line with or slightly above forecasts.
"We have made a strong start to the year, delivering another good quarterly performance and continuing to position the business for the long term," Darroch said.
Analysts had been expecting a "lacklustre" number of new customer additions due to the tough economy, the distraction of the Olympic Games in London and the fact that the business is becoming more mature after years of rapid growth.
They had also been keen, however, to see how the business was operating after Virgin Media reported upbeat trading earlier this month and following the arrival of U.S. online DVD rental company Netflix in Britain.
($1 = 0.6207 British pounds)
(Reporting by Kate Holton; Editing by Guy Faulconbridge and Helen Massy-Beresford)