“Other” worries affecting Eutelsat

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One market analyst described Eutelsat Q3 results, released May 14th, as “idiosyncratic”. They were best described as flat, with CEO Rodolphe Belmer explaining that Eutelsat’s extremely important Hotbird prime video slot was holding steady in terms of revenues and with a fill rate that was showing a modest growth helped by favourable renewals and new business.

The operator’s Q3 revenues were €337.4 million (down 1 per cent) although excluding “Other” revenues, which worried analysts. Its Government Services division brought in €38 million (down 2.3 per cent y-o-y). Mobility was a shining star, with revenues of €18 million (up 17.9 per cent).

Michel Azibert, deputy CEO, said that Hotbird’s channel count remained resilient, adding eight channels, while the MPEG-4 channel count rose 9 per cent to 567. Eutelsat’s overall backlog stood at €4.6 billion (€4.7bn last year) and “reflecting the absence of significant renewals during Q3”.

One DTH area under pressure is Eutelsat 16A. Azibert explained: “In West Africa, it’s safe to say that on a year-on-year basis we saw the revenues at 16A decrease mostly because we terminated contracts with some certain African DTH customers which were, let’s say, not being successful commercially. But this is behind us, and the fill rate on 16A is starting to increase again slightly.”

Laurie Davison, Deutsche Bank’s telecoms analyst, pointed out that this was the first quarter-year in over 10 years where Eutelsat had registered “zero” income under the ‘Other’ column (which reports on revenues unrelated to on-going capacity sales). Davison says this simply doesn’t add up and could mask weaknesses in the other key categories. “This looks suspect to us. We reiterate our SELL [advice] on Eutelsat”.

Giles Thorne, equity analyst at Jefferies, also had worries over “Other”. He said: “What adds to the mystique is that Eutelsat has felt the need to caveat its FY18 guidance due to the performance of ‘Other’ in the quarter.” He added that ‘Other’ and its non-revenue – if maintained – could further trim Eutelsat’s revenue targets for this year. Thorne pointed out that the market consensus for ‘Other’ revenues is around €25 million. Nevertheless, his advice to investors is to BUY Eutelsat, not least for its 2018-19 prospects.


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