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A major study of Europe’s media stocks from equity analysts at Berenberg Bank includes a close look at the prospects for the satellite sector. Included in the report are detailed examinations for Europe’s two major satellite operators, SES and Eutelsat.
The report says that new US President Donald Trump could be good news for satellite stocks generally. As for Luxembourg-based SES, the report says that even though ‘government and military’ demand represents just 12 per cent of SES’ business, the new president could increase the Department of Defense’s spending on satellite capacity. “The increase [will] likely go to satellites (connectivity and surveillance). The shift to next-generation unmanned aerial vehicles (UAVs) requires vastly more bandwidth than is currently used by standard Predators, Reapers or even Global Hawks, and will be part of that growth in consumption in our view,” says the bank.
However, the bank pulls no punches as far as SES is concerned. “After negative organic growth in 2016, 2017 will be a key year for SES. Unlike Eutelsat, which is not set to return to growth until fiscal 2019, SES has indicated that it expects to grow both on an organic and pro-forma basis in 2017. If it falls short, we think investors may tire of waiting, even if the dividend yield is attractive. Certainly a rerating is unlikely if SES remains in negative territory. We believe, though, that growth is possible, and forecast proforma organic growth of 4 percent for 2017 (estimated), accelerating further in 2018 (estimated).”
But there’s also praise and optimism. “The last few years of satellite operator downgrades have taught us that even the fixed satellite service (FSS) operators are different. SES and Eutelsat have a different business mix, and even within broad segments (eg video, data) there are material distinctions between the two companies. The consolidation of O3b, though, differentiates SES from all satellite players. We expect to see more hybrid contracts where SES is unlikely to be able to provide a combination of FSS.
Ku-band, FSS Ka-band and MEO Ka-band. This ability to tailor bandwidth to the customer’s need increases the likelihood that SES can take share from the peers, we think.”