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SES: “The Supertanker is turning”

There’s been a fair amount of negative comment these past months about satellite’s future role and prospects for investors. In particular, the threat from broadcasters transferring their loyalties from DTH transmission to OTT supply via broadband is frequently seen as a negative from some DTH operators.

‘Not so,’ implies a major 15-page report to investors from equity analysts at Berenberg Bank. The note says that “Video will remain a cash cow,” as it looks in detail at satellite operator SES. “To judge from investor feedback, the prevailing view in the City, except among shareholders of ITV, is that no-one watches television at all, apart from a bit of Netflix. The reality, however, is that linear TV consumption is declining at a rate of only 2-3%, and this is despite a huge ramp up in the penetration of over-tOTT) services like the aforementioned Netflix and Amazon Prime. Yes, young viewers watch less linear TV than their older counterparts, but this was always the case. In large part, we think OTT/on demand is coming on top of traditional linear TV consumption.”

Berenberg compares SES with that of a giant supertanker, and the slow rate-of-turn that is possible from one of these giant vessels. The bank’s report says: “With 66 satellites in orbit and a backlog with a revenue-weighted average life of over eight years, SES’s repositioning strategy to take advantage of huge growth opportunities in the data market was never going to achieve quick results. In 2017, though, we should see the results of this strategy emerge. First, we expect a return to organic revenue growth in 2017, with acceleration in 2018 and 2019 driven by the bringing into use of the new capacity in which SES has invested. Second, we expect returns to begin rising, as the investment programme in that new capacity drops away and capex returns to much lower levels.”

Moreover, the report says that SES will still enjoy plenty of growth. “We think SES is materially undervalued. In our view, the market has fundamentally missed the point: this is not a legacy business but a growth story that will surprise on the upside over the next few years, driving further dividend growth and potential capital returns by the end of the decade. We reiterate our Buy rating and our price target of €32.”

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