Satellites: “Still boldly going”

A major report from Sami Kassab, the specialist equity analyst at investment bank Exane-BNP/Paribas, highlights the fact that satellites in general are now entering what Kassab describes as “new space”, and with the “pace of innovation in satellite technology accelerating to unprecedented levels. This will enable further capex efficiency gains, supporting Free Cashflow generation. On the flipside, we expect these gains to structurally increase price pressure on top of the more temporary issue of industry oversupply. Satellites are costing less but will also earn less, we think. The right vertical and geographic exposure is key. Eutelsat appears best placed – SES and Inmarsat look more at risk.”

Kassab has revised and re-interviewed the sector’s senior managers of the major operators, but also talked with the ‘new space’ players in the fast-growing nano-satellite sector, and indeed he says that these new players and “are likely to take share from incumbent GEO narrow-band providers.”

He highlights that “the pace of technological change in the satellite industry has accelerated to an unprecedented level, driven by a focus on innovation in satellite and antenna manufacturing as well as launch services. This is both a curse and a blessing. Further capex efficiency gains look inevitable and will help Free Cashflow generation. But these same capex efficiency gains – even more than the much talked-about temporary industry oversupply – are also driving price deflation and putting pressure on revenue per satellite.”

The bank has commissioned an independent study of actual usage and demand in order “to assess the capacity leased by broadcasters on 12 satellites operated by Eutelsat and SES at four key orbital positions in Europe and MENA. We believe that our tracking now covers around one third of Eutelsat and a quarter of SES group revenues or close to 60% of Eutelsat Video revenues and about 35% of SES Video revenues. This real-time tracking of satellite capacity demand is unique in our view and helps us in our financial forecasting.”

That examination indicates that European capacity usage on SES Astra has deteriorated in recent months while it has stabilised on Eutelsat Hotbird.

Kassab addresses some contemporary theories which suggest that so-called minority limited-interest channels will abandon satellite and migrate to OTT. “However,” says Kassab, “despite the increasing reliability of terrestrial networks, we believe existential concerns look overblown as the economic cost of satellite broadcasting is covered with a mere 150k–200k subscribers, that is 5 per cent or less of the average Pay TV subscriber base. With its exposure to Western Europe and the US, we consider that SES remains more exposed to competition from terrestrial networks than Eutelsat which has a greater focus on countries and language areas which are lacking fibre infrastructure. We feel reassured in our view that Eutelsat’s video revenues should continue to show good resilience, which could be a driver for further outperformance.”

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