On July 31st Eutelsat, along with its end-of-year results, announced it was buying Mexico-based satellite operator SatMex for about $1.1 billion. The deal will probably close by the end of this year. Except the market is not sure it has done the right thing. Investment bank Morgan Stanley, for example, summed up the position saying it presented a “disappointing outlook”.
The bank’s report recognised that buying SatMex would inject growth into Eutelsat but that the satellite operator “paid a full price” for the potential asset. The bank was concerned with Eutelsat’s CEO Michel de Rosen candidly saying “We see a slowdown in the growth of the industry”.
The bank’s note to clients also questions whether Eutelsat, which is very much a video-based business, and while SatMex will launch new satellites over the next few years the Mexico-based business is – to date – not supplying DTH video. This means that the business has a very small contract backlog given that its existing contract are “volatile” says the bank, and not the high-margin video business Eutelsat is traditionally used to.
These concerns have been translated by the market into a falling share price for Eutelsat this week. Eutelsat’s share price opened on Monday 26th July at €22.50. The SatMex news and results statements saw the price tumble to €21 (a 12-month ‘low’). It finished the week at €21.50, which might not seem too bad except that just three months ago it stood at €27 and six months ago stood at €28.
A €6 fall in barely six months must be something of a worry for shareholders.