Last week equity analysts Exane BNP-Paribas rated Eutelsat as one of their ‘top picks’ in terms of media shares, and their recommendation to “avoid Luxembourg-based satellite operator SES. However, another bank report places a very different perspective on SES and its prospects.
Analysts at investment bank Jefferies dig very deep into SES and in particular anxieties which have circulated for the best part of a year and concern a shift away from satellite transmission and whether the world’s broadcasters and viewers are increasingly favouring IP-based delivery and in particular TV viewing would migrate to terrestrial distribution.
Jefferies admits that 2015 was a “year to forget” for SES, and after touching all-time highs early in 2015, SES was beset by troubles (some of its own making). The most destructive has been renewed questions around satellite’s role in TV transmission. Much of the latest iteration of this long running debate has centred on how a broadcaster could migrate from satellite to terrestrial, but not really looked at whether they would.”
Jefferies quotes UK regulator Ofcom, and its recent Public Service Broadcasting Review, and while Ofcom mentions the threat from emerging IP-multicast technologies and which could be a credible alternative delivery method for linear TV, the bank has looked at the costs of IP delivery and while being “very cheap” they do not threaten satellite’s role in the bank’s view.
Indeed, the pre-Christmas success from SpaceX in landing a potentially re-usable rocket stage also potentially benefits future SES launches. SES-9 is due for launch this month and while there will not be an extra discount on the launch, future contracts a year or two from now will gain a tangible financial benefit from refurbished rockets.
In summary, Jefferies says the debate over satellite’s future is valid but the risk of “mass migrations” away from satellite is not likely. It re-rates SES with a “BUY” rating with a price target – although lowered – of €30.50 (from $32.50).
One extra point worth remembering is that most industry observers expect SES to fully consolidate its current 49 percent (recently up from 46.9 per cent) position in the Jersey-based O3b satellite constellation. “We remain of the (consensus) view that SES will move to 100 per cent control of O3b in 2016,” says Jefferies.