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Intelsat “worst is yet to come”

A report by a well-regarded Wall Street analyst, Armand Musey, is not favourable towards global satellite operator Intelsat. Intelsat has suffered dramatically in terms of stock market confidence, and has seen its share price come under severe pressure these past few weeks. At the end of last week its price hit a historical ‘low’ of just $6.26, but has recovered somewhat this past few days to finish on October 7th at a much-improved $7.56.  However, this remains well down on the $9.60 value back in mid-September.

Musey says the worst might not be over.  “To put the satellite industry pricing pressure in perspective, Intelsat’s revenue is down approximately 5 per cent year over year despite nearly identical transponders utilisation. But due to its long-term contracts, Intelsat sells less than 20 per cent of its revenue of a given year in that year. For renewals/replacement contracts of less than 20 per cent of its business to reduce revenue by 5 per cent, the underlying prices are likely down be down in the order of 25 per cent during this period. As these declines work through renewals over the next few years, Intelsat faces significant additional revenue declines, even if pricing stabilises, something few industry observers expect given the onslaught of new capacity.”

There have been some authoritative reports that Intelsat might be considering selling off certain assets to reduce debt.

Musey adds: “At first glance, Intelsat might seem like a buying opportunity, but greater downside, potentially even restructuring, awaits as a result of extensive pricing pressure, the extent of which is not well understood by the investment community.”

He explains: “New operators are now pricing as low as $500 Mbps/month vs. Intelsat’s legacy contracts that generally several times that price. As contracts come-up for renewal and pricing continues to decline, Intelsat’s Network Services revenue could be crushed. Even if the market grows as a result of new high throughput satellites, it is not clear how much Intelsat will benefit. The recently announced deal between Facebook and Eutelsat) for capacity on Spacecom’s AMOS-6 satellite over Africa appears to be for under $200 per mbps/month. Although this is a wholesale rate, it is well below where Intelsat can be profitable. And prices will probably fall further yet.”

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