Inmarsat: “Time to put cards on the table”

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Last week Inmarsat’s board firmly rejected a second tentative bid from EchoStar, which had talked about paying £5.32 a share for the London-based global satellite operator.

A report from the equity team at Berenberg Bank suggests it is now time for Inmarsat to lay its cards on the table, given that the operator’s somewhat volatile share price has since risen to £5.46 in London July 12th (but well down on its June 25th position of £6.32) helped by investor speculation of another bid.

The bank’s July 12th note says: “Given EchoStar’s actions to date and the lack of any obvious material synergies between the two companies, it is somewhat debatable whether any combination between Echostar and Inmarsat will be consummated. However, given the confidence of Inmarsat’s board that 532p significantly undervalues the company on a standalone basis, we expect some pressure from shareholders for management to back up this claim with some positive communication. Shareholders need to be careful with what they wish for, however; those who have followed the stock over recent years have witnessed the results of what can happen if management looks through rose-tinted glasses. Visibility and timing of any value crystallisation remains limited, in our view, and our price target suggests downside to the current share price. That said, we do expect management to be pressured by shareholders into providing more details on the pathway to medium-term value creation, which could reassure investors for now. We also believe ongoing M&A speculation will likely provide a floor to the share price in the coming months. We thus reiterate our Hold rating.”

The bank’s report adds: “Clearly Inmarsat shares have been boosted by EchoStar’s interest and are now comfortably off the multi-year lows they were trading at prior to the announcement on 8 June. With ongoing speculation likely to continue, and perhaps a now more bullish management stance (as described above), we expect this premium could continue over the coming months. M&A aside, however, we do not believe the shares offer value at the current levels. Upside could come from new exceptional revenues or continued Ligado payments, but with no certainty on these we think neither are suitable reasons to put fresh money into the shares today. The stronger US dollar is the main driver of both our estimate changes and small price target update.”


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