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SES: “Not dead yet”

The satellite sector has had a torrid time lately, not helped by a lack of confidence with investors over Intelsat’s position. Intelsat’s troubled status – as far as the stock market is concerned – has also affected the share positions at SES and Eutelsat.

Equity analysts at Berenberg Bank, in a strong “BUY” note to clients, say that while 2015 was not a year that SES management will want to dwell on, “we see 2016 as the turning point when the core business returns to growth, with top-line acceleration gathering pace into 2017 and 2018, driven by new capacity for which SES has major pre-sales commitments.”

The past year has seen SES, in terms of its share price, fall from grace from a ‘high’ of €34.92, to just €22.11. Currently it is around €25.60. Berenberg places a target price of €34 on SES.

The bank’s 30+ page report says that structural concerns about the position of satellite are misplaced: The bank says it thinks arguments against the use of satellite for video broadcasting are flawed. We believe that satellite remains key to the business of video broadcasting, on the grounds of cost, business model and technical capability. “We note that in 2015, SES’s video business grew at over 2 per cent, despite the fact that there was no new capacity in the fleet last year. That rate should accelerate in 2016.”

It adds that SES has a key position in the in-flight mobility market. “Although the Fixed Satellite Services (FSS) operators are not generally seen as beneficiaries of this large opportunity, SES has emerged as a major provider of capacity to key players in this marketplace, including Gogo, Global Eagle Entertainment and Panasonic Avionics. Although most of the benefit will be in future years, when SES has new dedicated capacity launching, even today up to 2,000 aeroplanes per day are using SES satellites to provide inflight broadband and entertainment to their customers. By contrast, Inmarsat, with Global Xpress, has around 300.”

The bank also praises SES’s position in O3b (the global constellation designed to reach the “other 3 billion” underserved broadband consumers). “SES’s stake in O3b is not fully appreciated by the market, because it is still loss-making and sits below the line. We think SES will seek to take control of this business and that with more disclosure will come a greater appreciation of what O3b is worth.”

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