November 15, 2016
A major 23-page report from equity analysts at investment bank Jefferies, and headlined: “Rehabilitation” examines the past year for European satellite operators (SES, Eutelsat and Inmarsat and Intelsat) with the bank saying that it was now firmly of the opinion that this past year’s difficult trading and revenue challenges were largely “misplaced” and that there is “now value in the sector” for investors although “each [company’s] story is different.”
The market for satellite capacity is largely becoming “stabilised” says analyst Giles Thorne, and repeats his view that the massive downgrade in May 2016 for Paris-based Eutelsat was “overdone”. Thorne criticises Eutelsat for a “clumsily worded and dramatically over-interpreted downgrade statement” and suggests that – because Eutelsat was the last of the major satellite operators to reveal their numbers, left an “information vacuum” which “proved the perfect conditions for the buy-side and sell-side alike to run amok with this new Eutelsat-inspired theme of ‘structural oversupply’. We don’t deny the issues that Eutelsat has – but these were Eutelsat issues, not industry issues.”
Indeed, Thorne firmly backs Eutelsat as the “value name” in the sector, and while Jefferies prefers mix of assets and Inmarsat for their mix of assets and overall positioning, he sees Eutelsat’s share price and multiple as being “far too low” and that Eutelsat is far from the broken business some have suggested.
Thorne is also a fan of SES, giving the operator a “BUY” endorsement and adding: “SES management ‘get it’, in our view. [Their] output is a superior growth profile to its FSS peer, Eutelsat (albeit at a higher multiple). We see the Enterprise issue as diminishing while O3b is already proving its commercial merits.”
Jefferies report says: “We’ve always been a fan of how the CEO repositioned the message when he took the role in 2014, moving to the premise of “what does satellite have to do to remain relevant?” To us, this far better captures the inherent challenges of the industry at this point in time. In our view, his response is the correct one too: you have to be global and scalable, you have to focus on key verticals, you have to innovate at every level of the business to deliver differentiation. A deceptively simple message, decidedly hard to deliver; we think SES ‘gets it’ and will deliver sustainable growth.”