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Eutelsat is through the “perfect storm”

Paris-based satellite operator Eutelsat received a positive report from equity analysts at investment bank Berenberg, saying that despite a lackluster Q2 and Q3 (in its trading year which wrapped on June 30th) the operator “looks to be through the worst of what we have been describing as a perfect storm. Having spent time recently with the company CFO, we are now more confident that the headwinds seen this year will reduce, broadly offsetting growth next year, with the company returning to positive territory in FY19.”

The bank’s report adds that while Q3 video revenues fell by 4.1 per cent, “there was underlying growth in the broadcast business of 2 per cent if we exclude the one-off impact of the HotBird purge and one-off revenues from Fransat HD cards. This backs up our thesis that video remains a structural growth business, even if Eutelsat’s and SES’s revenues have declined recently. That said, with 12 months of sluggish growth ahead before the turnaround really comes to fruition, we see limited scope for significant share price outperformance and reiterate our Hold rating.”

The note to clients says that Eutelsat is making headway with its ‘LEAP’ cost-savings programme. “We were not surprised when Eutelsat announced its cost-savings programme given the new CEO’s strategy of maximizing free cash flow between 2016-19 and then growing the top line thereafter. The plan will result in annualised savings of €30 million by FY19. While supportive for near-term estimates, and the key driver for our FY18 and FY19 upgrades and our price target increase, we do question whether these

OPEX (and Capex) savings can be made without them affecting medium term growth. Management appears confident that this is the case and for now we give the company the benefit of the doubt. Our estimates increase accordingly, and factor in a positive non-cash one-off related to deferred tax liabilities in anticipation of the reduction of the French corporate tax rate between now and 2020.”

Eutelsat will unveil its full-year results on July 28th.

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