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Meltdown at Intelsat

February 20, 2015

Intelsat has not enjoyed the best week of its life. Its share prices have tumbled in the past 3 days. On Monday Feb 16th its already struggling share price was steady at $17.01 a share.

On Wednesday it unveiled its latest results, and the share price crashed to $15.60. Thursday’s loss was another  fall to $12.84 (day on day fall of 17%).

Barely two years ago in April 2013 Intelsat mounted its IPO and despite an unenthusiastic market managed to raise $348 million at an offer price of $18 (it had been seeking $21-$25 a share), and a prompt rise over the following few days in their value to $19.25. Despite a high degree of volatility in the market they rose to almost $24 in September 2013, but have since seen a steady fall in their value.

Two days ago analysts at investment bank Jefferies summed up Intelsat’s predicament, saying the results were worse than expected. “The tone that pervades the entire release is one of entrenched headwinds with downside risk.”

The market’s worry is that by Intelsat’s own admission trading in 2015 is going to be tough, with further cut-backs by the US government on military communications, business problems in Africa and “geopolitical” tensions in markets such as Russia.

On Feb 19 ratings agency Standard & Poor’s downgraded Intelsat to “B+” with “negative implications”, saying: “The CreditWatch placement reflects a revision in our base-case forecast for Intelsat due to its lower-than-anticipated guidance for 2015, and our expectation that weakness could persist into 2016 due to pressure in network services, continued uncertainty around government demand, and potential delays in revenue contribution from the launch of its first high-throughput (HTS) satellite, IS-29e.”

IS-29e’s launch date has slipped from later this year into Q1 2016. While Intelsat cannot in any way be blamed for this delay, the slippage means no revenues can be booked until (probably) Q2/2016.

JP Morgan also downgraded Intelsat on Feb 19 from “Neutral” to “Underweight”, and reduced its ‘target’ price on Intelsat to just $12.

UBS did much the same, downgrading Intelsat from “Buy” to “Neutral” and issuing a target price of $17, saying that “We continue to believe Intelsat owns a unique set of assets, benefiting from high barriers to entry, predictable cashflow, and high operating leverage.”

* An earlier version of this story erroneously repeated an agency report quoting as downgrading Intelsat from ‘Neutral’ to ‘Sell’, rather than ‘Underweight’.

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