Eutelsat: “Another miss on Video”

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Eutelsat is the first of the three satellite majors to report its H1 results (to December 31st), and the headline numbers were all down on expectations and prompting the market to immediately slash the operator’s share price by €1.67 (9 per cent).

Eutelsat posted overall revenues of €658.1 million, down 4.4 per cent compared with the same period in 2017.

The core financials showed that overall Revenues were down 4.4 per cent (to €432.1 million), and drilling down into the various divisions showed that Video was down 2 per cent, Fixed Data fell 11.9 per cent (to €66 million), Fixed Broadband down 5.8 per cent (to €40 million).  The only positive departments were Government Services, up 1.7 per cent and Mobile Connectivity up 6.7 per cent (to €40 million).

Commenting on the First Half, Rodolphe Belmer Chief Executive Officer of Eutelsat Communications, said: “Eutelsat delivered a solid set of results in the First Half. While the revenues profile reflected the anticipated back-end loading in the second half, profitability remained robust and gearing was further reduced. We continued to leverage all components of cash generation, with the LEAP cost-savings plan on track, the effective application of design-to-cost to the HOTBIRD replacement, the successful €800 million bond issue in October and the disposal of our stake in EUTELSAT 25B. In addition, although it cannot be reliably measured at this stage, new provisions in the 2019 French Finance Law will likely have a significant beneficial impact on our corporate tax bill.

The various analysts having examined the numbers took some relief in the mid-term prospects. For example, Sami Kassab at Exane/BNPP, said: “Management has confirmed all elements of its FY19 and longer term outlook and continues to guide for ‘broadly stable revenues’ in line with consensus forecasts. It also pointed to the positive effect of regulation on its tax rate but did not quantify the impact at this stage.  We find it hard to call the direction of the stock as headline numbers are slightly below but management has reaffirmed with some credibility (ie contract gains) its outlook.”

Laurie Davison, at Deutsche Bank was blunt, saying “Another miss on Video. While contracts were announced with the Ethiopian Broadcasting Corporation and Afghanistan Broadcasting System, these are in low pricing regions and the implication is still that the core W. European and LatAM revenues are under pressure. The disclosure of HOTBIRD channels down 2.5 per cent yoy (1002 to 978) further reinforces these concerns.”

Davison also pointed out that Eutelsat had already trimmed their guidance for this current year.  “At Q1, it moved its revenue target from ‘slight growth’ to ‘broadly stable for this year’. It is also applying this target of ‘broadly flat’ to Operating revenues, rather than total sales (to exclude Other revenues).”

Perhaps worrying for the market is Davison’s comments that this “miss” on top-line numbers does not augur well for SES (on February 27th) and Intelsat (numbers due on February 20th).

However, a contrary view from Patrick Wellington at Morgan Stanley was more optimistic, and who said that he thinks the shares should rally over the next few days as the market contemplates a stronger H2 of trading.”  In fairness, Eutelsat said it was happy with the current trading position.


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