Last week one firm of investment bankers advised clients to “Sell” their Eutelsat stock. This week a different set of advice comes from Morgan Stanley which highlights Eutelsat as one of its Top 5 media stock picks of the year, despite being a poor overall performer during 2012, and at one stage last year revising downward its expectations for the year. The revisions were not helped by market anxiety that Eutelsat’s expensive Ka-Sat project was being slow to show progress.
Now, however, Morgan Stanley’s view is that Eutelsat is “on track for redemption” in 2013 and where, “since the end of June 2012, management has done an increasingly good job explaining what exactly went wrong earlier this year, and has been talking more openly about operational trends in order to reassure on the robustness of the underlying structural trends that underpin Eutelsat’s growth.”
“We forecast,” says the bank’s note to clients, “Eutelsat’s top line will accelerate over the next two years thanks to increasing capacity as it has successfully launched Eutelsat 70B and 21B in 4Q12. Increased capacity will allow Eutelsat to (i) gain new contracts with the Pentagon from February 2013, (ii) produce solid growth in Data, which suffered from a shortage of spare capacity in Eutelsat’s hottest spots (North Africa, Middle-East etc.), and (iii) comforts Eutelsat’s ability to produce strong growth in Video.
And it is ‘Video’ that remains at the heart of Eutelsat’s business, and revenues in this segment remain solid and pretty predictable. “Based on Euroconsult estimates, management is forecasting +8.8 per cent 2012-15 CAGR in fast-growing market demand for Ku-band transponders. CEO Michel de Rosen recently explained at our Barcelona conference that he is pretty unworried about any potential overcapacity in emerging markets because Eutelsat operates in ‘hot spots’ where the supply / demand balance remains largely favourable to the group.”