A negative report on the satellite industry from equity analysts at Deutsche Bank does not pull any punches in its report on the sector, saying bluntly “The first step is admitting you have a problem”.
Analyst Laurie Davison opens the bank’s report with a summary of the past month’s results season on the ‘Big Three’ players (SES, Intelsat and Eutelsat), saying; “Another set of results and yet another round of downgrades. SES misses on dividend, guides to heavy Video declines in 2018; ETL beats on results but only after consensus downgrades into numbers, Intelsat misses and guides down. Time to call the floor on valuation and earnings? Far from it. 4Q results deepens our concerns over Video decline following the belated acknowledgement from SES that western European Video is now seeing pricing decline.”
Focusing on SES and Eutelsat in particular, Davison adds that both operators are at the limits of investment grade and heavily exposed to higher interest and dividend cuts with higher rates. This is not the time to BUY either SES or Eutelsat.
“One of the lessons of 4Q results is that the legacy GEO widebeam business is set for even faster erosion from LEO, MEO and managed solutions involve Ku-based High Throughput satellite bundling. Eutelsat has greater exposure to backhaul & trunking which is falling fastest, has done little to build out managed solutions and has not invested in MEO or LEO. It’s only defence is the single Ka-Sat consumer broadband satellite, whose consumer broadband focus has already disappointed. Having hosted investor meetings with new SES management and held management meetings with Eutelsat in the past 2 weeks, we continue to see SES’s MEO & managed solution strategy as more credible for generating growth over the longer term.”