Intelsat’s share price hit a new 52-week ‘high’ of $26.74 on September 25th (up 16 per cent) and the price went even higher the next day following the successful launch of its two latest satellites. Translate this into an annual performance and it equates to a massive 570 per cent rise in value since one year ago.
But Wall Street commentators suggest that there’s plenty of upside in terms of Intelsat’s share price. Equity analysts at investment bank Jefferies suggest a $32 valuation in a report they issued recently. Six months ago, its share price was languishing at barely $3.
One important aspect is the September 25th bids in an Italian 3.7 GHz spectrum auction. Intelsat has no tangible interest in the Italian market, but the auction achieved bids of $0.29/$0.35 per megahertz pop* and with US spectrum values tending to be between 5- and 10-times those of Europe, this implies a valuation for Intelsat’s C-band frequencies as being well north of $1 a megahertz pop.
Three other key elements have also driven investor confidence: First up, is the series of successful satellite launches which cements Intelsat’s conventional revenues for the foreseeable future. Its latest two (Intelsat Horizons 3e and Intelsat-38) were successfully launched on September 25th.
Second, is the market’s attitude to Intelsat’s significant debt burden (at $13.79 billion, at June 30th) and which is significantly more relaxed these days thanks to its frequent re-financing agreements each of which reduces Intelsat’s borrowing and interest payments.
However, the third reason is the most important, and one market-watcher has valued Intelsat’s share price prospects as potentially reaching $61+ a share. Indeed, the hedge fund, Kerrisdale Capital, places Intelsat’s valuation as perhaps even higher. The reason is Intelsat’s prospects of lottery winning benefits flowing from a re-distribution of some of Intelsat’s C-band assets over the US. The frequencies would be used to help roll out 5G transmissions for wireless businesses.
Intelsat is a heavily-leveraged company with modest annual growth rates from its traditional business. But Kerrisdale calculates that its potential income from selling off a slice of C-band spectrum over the US could be worth a staggering $27 billion. Even after the costs of reassigning existing – mostly cable – clients and their important ground infrastructure, there is an implied net gain of more than $24 billion.
Read that again: $24 billion, which is more than enough to pay off all of its debts and return some valued bonus payments to investors (and staff).
Kerrisdale said (in a June detailed report) that Intelsat’s 2008 LBO left Intelsat heavily indebted, and satellite-industry headwinds since then have made its financial position even more precarious. “Today, however, most of Intelsat’s bonds trade at or near par. Based on our discussions with market participants, we believe that credit investors attribute enough value to Intelsat’s spectrum to feel comfortable refinancing the company’s existing capital structure, buying the company time as it waits for a final FCC order and perhaps even initial clarity on monetization of the first 100 MHz of the C band as early as next year. With so much embedded value likely to be crystallized in the next several years and the nearest-term debt maturities arriving only in October 2020, Intelsat should have the financial flexibility to stay the course until its windfall is in view – at which point its strained balance sheet will finally heal.”
*”Per MHz pop” refers to a standard telecoms industry measurement. It refers to one megahertz of bandwidth passing one person in the coverage area in a spectrum license. If you have 6 MHz of spectrum reaching a region of 1 million people, you have 6 million MHz pops.