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Eutelsat’s CEO Rodolphe Belmer appeared at the Exane/BNP-Paribas CEO Conference in Paris this week, and his presentation saw an “improving tone… [and] more upbeat” following on from its Q3 profits warning which had a severe impact on the satellite operator’s share price.
According to the investment’s bank equity analyst Sami Kassab, Belmer reported his expectations saying that while 2017 would suffer a revenue decline, organic revenue growth is seen stabilising first and then returning as video distribution accelerates, government services stabilise, broadband gradually takes off and more than offsets structural declines in Data and Video Contribution (c.20% of group revenues).
Kassab saw the key messages as being “Hosted payloads, shared satellites, industry efficiency gains and no further investments in Data-focused satellites (two thirds of total capex in recent years) underpin guidance of a significant capex cut (numbers to be disclosed in July). Management expects capex reduction coupled to the March 2017 bond refinancing, Opex cuts” all resulting in annual increases in
Free Cash Flow despite top line pressure. “Management talks of a return to top-line growth in the medium term and of steady FCF growth in the short term, leading us to reaffirm our view that the dividend will be protected. Our forecasts remain unchanged,” says the bank.
However, Kassab warned that the satellite industry is suffering from global over-capacity which is driving [transponder capacity] prices down. He cautions that betting on Emerging Markets for video distribution and new verticals (including broadband) “remains a longshot, justifying a prudent view”.
He adds that Eutelsat has now underperformed the sector by close to 40 per cent in the past 3 months, which “seems excessive” and says that he expects Eutelsat’s dividend (currently €1.09 per share) could drive a short-term rebound as investors anticipate the July quarterly (and year-end) update.