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SES raises €900m to buy O3b

Satellite operator SES took barely an hour on May 27 to raise more than €900 million in equity funding in order to finance its purchase of the remaining 49.5 per cent of the O3b constellation that it does not already own. Issuing 60 million new shares (at €19 each) diluted its share price 11.43 per cent (€2.54) at one point on May 27 although recovering to €19.93 by close of trading. This is still well down on its €24.45 position as recently as May 10.

 Channel Islands-based O3b has 12 speciality High Throughput satellites in Medium Earth Orbit (MEO) at some 8,000 kms above the Earth (although four are not fully operational), and there are another eight on order, and taking the overall constellation to 20 by late 2019.

 But the main appeal for SES is the rapidly-growing enthusiasm and business that’s apparently flowing to O3b. Originally planned to serve ‘the other 3 billion’ poorly connected broadband users around the planet, O3b is turning in some excellent revenue numbers.

This year, the company is expected to generate more than $100 million in revenues (twice that of 2015), and this sum is likely to grow to around $680 million annually by 2023 (if the planned 2018-2019 satellite launches happen on time).

SES says that each O3b satellite is expected to generate between $32-$36 million annually in revenues. In other words, the target revenue range could be $620m-$720m by 2023. SES has said that there’s room in the O3b constellation for up to 100 satellites if the demand expands.

Once the purchase formalities are wrapped up, SES expects to achieve cash-saving synergies by means of the consolidation.

 O3b has carved out a remarkable success in one area, although it has little to do with the poorer parts of the planet but everything to do with well-heeled consumers who find themselves very much unconnected: on cruise ships. One of O3b’s most notable clients is the Royal Caribbean cruise operator and a growing number of vast ships with thousands of passengers (and crew) wanting to stay connected via O3b’s broadband capacity.

The Medium Earth Orbit permits very low latency (time lag) for calls and data links between O3b’s teleports (and cruise ships) and the satellites.

Equity analysts at Berenberg Bank, long-term fans of the satellite sector, gave SES a target price of €32 and maintains a firm “BUY” rating on SES. The bank’s note on the O3b acquisition on May 27 stated: “O3b is not fully appreciated by the market, because it is still loss-making and visibility on the business has thus far been low. However, now that it is set to be consolidated, we expect the move towards profitability to accelerate SES’s own earnings growth, and for greater investor appreciation of the potential of this business.”

 

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