Inmarsat in the doghouse

In what must be considered a case of “me too”, the market has treated London-based satellite operator Inmarsat with a marked downgrade following its profit warning. Inmarsat’s share price has crashed over the past ten days from about 600p to 497p on November 15th.

Indeed, the Inmarsat results follow on from similar poor results from SES, Intelsat and Eutelsat. Media analysts from investment bank Berenberg described Inmarsat’s dilemma as “punished” and as part of a results season that was one to forget for satellite operators., saying: “After profit warnings of varying degrees from Eutelsat, SES and Intelsat, Inmarsat followed suit by issuing EBITDA margin guidance below consensus estimates.”

The bank added: “We cut our 2018 and 2019 EBITDA estimates by c3% and our price target falls to GBp600. While this does imply 20% upside from current levels, we believe that the market has now placed all satellite stocks firmly in the doghouse. It is thus likely to take a prolonged period of in-line or better operating and financial performance before positive sentiment and momentum can return and fair value can be achieved. Visibility is low and quarterly downgrades are now the base case. We reiterate our Hold rating.”

The bank said that Inmarsat’s numbers, as with its peers, meant there were now uncertainties in every segment. “The issue that Inmarsat is having, in our view, in convincing shareholders of its growth strategy is that when we seek to model both near- and medium-term expectations for the company, we encompass material uncertainties across every segment of Inmarsat’s business. Aviation margins are falling fast and while revenue growth could well accelerate, there is little evidence today of the return on the investments the company is making. Maritime (ex-equipment sales) is still in solid decline and thus forecasting any growth, let alone the level of growth, remains a challenge. Government revenues have grown impressively but the Boeing take-or-pay contract, short-term hurricane-related revenues, a low-margin CSSC [US government Dept of Defense] contract and a material reduction in exceptional revenues within the International segment create a huge amount of noise and mask whether there is actually strong or weak demand for Inmarsat’s services. The Enterprise segment (ex-hurricane revenues) is a simpler story, but one characterised by material declines.”

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