Bank highly critical of Inmarsat

An investment bank report on London-based satellite operator Inmarsat makes for troubling reading. Equity analysts at Berenberg Bank, commenting on Inmarsat’s recent disappointing results said that the operator’s formal guidance for the year ahead has given “investors little reason to put fresh money into Inmarsat, in our view”.

The bank says that Inmarsat’s story now appears void of exciting growth and asks ‘where did the [expected] growth go? “In recent years, Inmarsat has spent c$1.6 billion on four Global Xpress satellites, c$200 million on its S-band satellite, over $100 million on the aviation payload for Qatar Airways and over $150 million on success-based capex (terminals). All things being equal, one would therefore expect that over $2 billion of growth capex would see a top-line CAGR higher than the guided mid-single digits,” it asks.

Inmarsat is in the process of re-inventing itself as a major supplier of satellite capacity to the In Flight Communications and aircraft broadband market, with plenty of potential upside in ‘direct-to-seat’ entertainment and connectivity for airline passengers.

The bank adds: “It remains our view that [Inmarsat’s] Global Xpress [service] has limited competitive advantage compared with other broadband technologies: the company continues to struggle to balance market share loss against pricing pressure as it moves from a near-monopoly narrowband position into a more competitive broadband environment. Having said that, we consider the new revenue guidance to be somewhat prudent: it is clear the company has benefitted from what it now considers exceptional revenues. While there is scope for similar revenues in future, we understand that, if these materialise, they will be upside to the new mid-single-digit CAGR revenue guidance.”

The report reminds investors that Inmarsat shares have fallen 50 percent in the past year. “However, estimates have also been cut several times and, while a de-rating has occurred, we do not believe the shares offer value at this level. Hold reiterated.”

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