SES: O3b consolidation close?
October 22, 2015
October 30th will see Luxembourg-based satellite operator SES unveil its Q3 results, and the market is hoping that SES might use the event to dispel some of the gloom that surrounds the sector overall just at the moment.
Share prices are down for each of the ‘Big Three’ operators (Intelsat, SES and Eutelsat) with confidence in each of the players damaged by recent news, not least changes to senior management and concerns over a number of key issues which affect future growth and profitability.
SES itself is now being obliged to wait even longer before the launch of its SES-9 satellite, which will be some 6-months later to launch than planned and not likely to start kicking in with any meaningful revenues much before summer 2016.
Equity analysts at investment bank Jefferies say this delay is “not the end of the world” which is correct, but it has meant a fall in the company’s overall valuation by the market.
At SES’s Q2 results they, in effect, issued another profit warning (one of three over the past year) over falling fixed data revenues. “The infamous fixed data headwind will be discussed though we don’t expect management will advance the debate one way or another (we reiterate our view that it’s an O3b related feint),” suggested Jefferies. “At the 2Q15 results, SES stepped away from the 2013-16 CAGR of 3.5 percent pending visibility on the SES-9 launch. We don’t yet see it being able to reinstate that guidance.”
Jefferies’ note to clients also addresses the O3B question, and when the Low Earth Orbiting business might be consolidated by SES. “Management have repeatedly said SES would wait to see evidence of commercial success before consolidating O3b (i.e., SES wants O3b to be generating meaningful EBITDA before moving to control so as to reduce the impact on leverage). More recently, management have spoken of moving to control in 2016. We now see this whole agenda as being accelerated to 2015. In doing so, SES has much to gain: 1. It obfuscates a softer revenue environment by changing the perimeter of 2016 guidance; 2. It bolsters top-line expectations (and investor sentiment) by bringing O3b’s double digit growth (“not beginning with a 1”, so the CEO tells us) onto the SES P&L; 3. It gets to hide the murky fixed data cannibalisation / seeding to O3b behind the scenes; and 4. Perhaps most importantly, it focuses the market and stakeholders on SES’s unique ability to do FSS-GEO, HTS-GEO and HTS-MEO, a source of real long term differentiation. The growth profile of the business changes dramatically post consolidation of O3b.”