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BNP downgrades SES advice

A report to investors from Exane-BNP/Paribas resulted in a downgrade (to “Neutral”) of their advice on satellite operator SES.

The report follows on from last Friday’s SES half-year results, which on balance were better than expected and ahead of consensus expectations. But during the results presentation SES’ management advised that this current half-year would be tougher.

Revenues would also not be helped by the delay of entry into service by SES-9, now patiently waiting for a launch on the SpaceX rocket. The problem is that the satellite could be waiting for another five or six months for its launch, and would then take 4-6 months to reach its operational orbit. A worst-case scenario would mean that SES-9 would not start earning SES any revenues until around May next year.

Exane, along with other banking analysts, while praising the SES signing of five Ultra-HD channels, very much focused on SES’ “Fixed Data” revenues, and to what extent they would be “cannibalised” by O3b, a satellite constellation 45 per cent owned by SES.

Exane’s Sami Kassab says: “Current share price levels assume a return to underlying revenue growth next year. While this is likely, the strength of the rebound is very much conditional on the stabilisation of structural pressures that have just started to weigh on the shares. SES needs to consolidate O3b to mitigate pressure in Fixed Data. The price it will have to pay is likely to reflect a hefty control premium. Given the bond-like characteristics of satellites, we do not see the need to own SES at this stage.”

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