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Eutelsat: “Sit back and wait”

July 6, 2016

Investment bank Berenberg is telling investors that they are going to have to be patient for at least the next 18 months for any signs of stability in Eutelsat’s results and positive movement in its share price.

Berenberg’s equity analysts speak bluntly, saying: “Eutelsat, along with the whole satellite industry, has had a torrid 12 months. Shares have fallen materially since the Q3 profit warning (-38 per cent), following a combination of 20 per cent + earnings downgrades and a more-muted, less-visible growth outlook. We do, however, ultimately believe that the medium-term offers growth, driven primarily by a continued increase in demand for video capacity, supplemented by pockets of growth within data and government. That said, given the magnitude of the downgrades and apparent lack of visibility, we do not expect investors to give management the benefit of the doubt until the revenue stabilisation is apparent, ie until at least mid-FY18.”

Berenberg’s advice to investors is to ‘HOLD’ their shares, and happily take the compensating dividends (which at 6.4 per cent yield is not expected to be reduced).

The bank’s note says: “We are believers that the provision of traditional satellite video is a growth market and thus the current issues at Hot Bird are, in our view, temporary. We also subscribe to Eutelsat’s view that there are pockets of opportunity within government. We do, however, have concerns around data pricing, but believe Eutelsat’s recent heavy launch schedule will result in the declines that management has described being more than offset by increased volume in the next couple of years.”

However, the bank’s note does have something of a sting in its tail for Eutelsat: “We believe the medium-term outlook for Eutelsat is more attractive than perhaps the current share price represents. However, near-term headwinds will give the market little evidence of a turnaround until at least FY18, a backdrop that does not suggest significant outperformance. Our new price target implies 9 per cent upside, and the dividend pays current investors to be patient. We prefer to play our structural medium-term growth thesis through SES (Buy, price target €32), which should see a return to growth as early as H216.”

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