Advanced Television

Mixed messages for SES

June 29, 2017

SES held its annual ‘investors day’ in London, June 28th, although some investors seemingly took a less than optimistic view of the satellite operator’s prospects. Some negative comments prompted a fall in SES’ share price of some 3 per cent, down from €21.88 to €21.50 on the day.

But it might be that the market was split in the usual ‘glass half empty’ compared with ‘glass half full’ conundrum.

Giles Thorne, an equity analyst at investment bankers Jefferies, took a more optimistic view, saying that SES presented a “much more confrontational defence” of its European Video market, which some see as being mature.

Thorne stated: “A far more proactive defence of Video than we’ve seen in prior years. Instead of politely walking through the fundamentals of Video and leaving investors to make their own conclusions, the presentation was half the length but with twice the content; the centrepiece of which was a worked example on European demand: European Video, at 40 per cent HD penetration (from 29 per cent currently) and MPEG-4 penetration of 65 per cent (from 52 per cent currently) would have 15-40 incremental transponders of demand (10 per cent of current European base). Furthermore, UHD adoption would offset any risk from MPEG-2 / simulcast switch-off (30 UHD channels [and SES has 22 currently] is equal to 220 SD channels at MPEG-4). Stern stuff from a usually timid management team.”

Thorne congratulated SES on a “job well done. Now we need to see it in numbers”.

There was more in Thorne’s note to investors, saying: “There was perhaps a greater emphasis on SES as “more than just a satellite operator” than we’ve seen before. O3b was SES’s vanguard into managed solutions, with the rest of the data-centric businesses now following – it’s evident from the video case studies that the strategy is working (i.e. unlocking pricing elasticity). Perhaps more importantly given the sticky oversupply overhang, we note a robust account of how SES’s differentiation is driving growth (“Africa is a region awash with widebeam supply, and yet how do you then explain the exponential growth we’ve seen with O3b there?”) and neatly aligning with the message from our August Orbiter note, “When the facts met the myths” that the risk is not oversupply, but execution (HTS was always going to create short term asymmetry – to survive, you need to have a credible go-to-market strategy).”

Thorne also praise Martin Halliwell, SES CTO, for his “dynamic” presentation, and outlining further capital expenditure reductions. “The primary drivers will be:

1. Life extension vehicles (see Advanced-Television’s report on the agreement with MDA)

2. Reusable rockets (no hard target on launch prices given but the CEO has previously signalled a $30 million price tag); and

3. Fully digital payloads (which inject huge flexibility, agility and mass gains as well as allowing for much more modular designs and therefore cheaper and shorter lead time satellites).

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