Intelsat: “High risk, but high reward”

Intelsat has just signed a capacity deal with its Epic satellite to supply bandwidth to the UAE’s Etisalat telco. A report from equity analysts at investment bank Jefferies, says the agreement is “on the face of it neither unexpected, nor material in nature, nor likely to bother consensus. But it nonetheless goes to the heart of [our] “Buy” thesis given it gently talks to many of the key touch points. We recently upgraded Intelsat to “Buy” because we think this type of ‘bread-and-butter’ execution is the cornerstone for the equity to return to life.”

Jefferies points out that Intelsat – in terms of its share price – has risen dramatically over the past month or two, and 20 per cent since the second week of September, and as a result the bank is raising its target price to beyond its $5 initial target, to $6.70, “but frankly, should the equity survive in an orderly fashion the re-rating will be fierce – Intelsat could yet regain its IPO price of $18 in time.”

The bank’s note says that the downside risk now harder and harder to defend, and “the 500 per cent upside risk becomes incredibly hard to ignore”.

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