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Last week Eutelsat issued a major profit warning to the market and its share price fell 30 per cent. The news provoked major falls for Luxembourg-based SES (8.08 per cent), USD-based Intelsat (9.66 per cent), and similar tumbles for London-based Inmarsat (4.22 per cent) and AsiaSat.
The fear of ‘cord-cutting’ and a reversal of demand for satellite capacity are now very real anxieties. While many operators are expecting extra demand from Ultra HD broadcasters the current UHD demand is but a trickle in terms of capacity available. Four years from now, at the Tokyo Olympic Games, it might well be UHD ‘heaven’ with hundreds of 4K – and even some 8K – channels on air, but 4 years is a long way off.
Eutelsat was at one point on May 13th trading at just €18.50. This time last year it stood at €31. It is a similar story at SES which now trades at around €22 when at the same time a year ago it was trading at almost €32.
Those are significant reversals, and equity analysts at Deutsche Bank put out a special note to clients (“The Big Bang Moment”) which was far from complementary on the satellite sector overall. Analyst Laurie Davison said that the Eutelsat profit warning was the largest seen by the industry in the past 10 years, saying: “Unlike previous cuts in guidance which have been mainly caused by satellite launch failures, government cuts or pressures in isolated markets, this is seismic. It covers the core of the industry earnings stream: the Western European video market and the main area of hoped-for growth, data applications in emerging markets.”
Eutelsat admitted that some of the downgrade was attributable to its flagship ‘Hotbird’ portfolio of satellites, as well as slower than expected progress with its LatAm fleet.
Davison has long worried about the impact of digital compression, but now adds channel closures (in Eutelsat-speak: ‘portfolio grooming’ and ‘rationalisation’). The bank’s note talks about players such as Orange (in France) shifting its TV carriage away from satellite and onto fibre, the slower number of HD TV launches and the use of IP for smaller, niche channels.
Davison is critical of Eutelsat’s major investment in its highly sophisticated Ka-Sat spacecraft, which – he says – “it has been persistently over-optimistic in forecasting [demand]”. The actual numbers using Ka-Sat (active terminals) is down from 190,000 at December 31st 2015.
But perhaps more worrying for observers is the near-complete reversal of optimism in just three short months. In what was described by one seasoned hand as a “brutal” quarterly statement from newly appointed CEO Rodolphe Belmer (who jumped from the Canal Plus Group ‘frying pan’ into the Eutelsat ‘fire’), Belmer admitted that the prospects for current investments in High Throughput Satellites was not good. “For the moment, that’s not what we see in the field. I cannot give you positive elements on that front.”
Berenberg Bank, in its note to clients, said that the news from Eutelsat meant there are “huge cuts” in pricing of transponder capacity in recent months.
For the wider satellite sector this is all bad news. Eutelsat is slashing its capital expenditure programme and this will impact future satellite orders. The market will have to wait until Eutelsat’s end of year report (in July) for a more comprehensive update, but it isn’t looking good, at least for Deutsche Bank and some of its fellow-analysts.