SES prays for C-band

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Unofficially SES is trying to calm investor expectations on the extremely important prospects for some C-band restructuring over the US. The logic is sensible given that a negative Federal Communications Commission (FCC) decision will probably not do its share price a lot of good.

On March 5th, SES shares tumbled a worrying 9.16 per cent (€1.64) while Intelsat crashed almost 20 per cent ($4.08) as investors suffered the jitters over the FCC’s decision. The reason was a news report that Trump – or perhaps Congress – was considering nationalising 5G spectrum over the US via a proposed Airways Act. Another report suggested that the US Treasury might levy a 5G ‘tax’ on satellite operators.

A report on Bloomberg this week also cited an oft-repeated complaint (this time from the Democrat chair of the House Energy and Commerce Communications and Technology Subcommittee) who showed a remarkable level of naivety in asking: “I think we have to ask ourselves: why should the FCC allow a group of foreign satellite providers to walk away with potentially tens of billions of dollars that could be used to solve our own country’s broadband needs?”

The ’foreign’ comment does not help Washington-based (but Luxembourg-domiciled) Intelsat, nor fellow-Luxembourger SES, France’s Eutelsat and Canada’s Telesat to “pocket” as much as $40 billion from the sale of C-band spectrum.

Bloomberg states that perhaps the FCC will accept the ‘sale’ of spectrum in favour of the speedy ramp-up of 5G and see the US Treasury earn far more in revenues from the new technology.

This is also the view of analysts at investment bank Berenberg, which in a new report says it is hoping that the C Band Alliance (of Intelsat, SES, Eutelsat and Telesat) succeeds in monetising the planned 200 MHz of spectrum over the US. “SES shares would be lower if the market were not pricing in upside in this regard,” says the bank.

Berenberg recognised that the Video division at SES has struggled these past few years. “Distribution trends got worse through 2018, with quarterly declines of -4.2 per cent, -4.2 per cent, -5.8 per cent and -6.4 per cent throughout the year. Services were lumpy, but delivered a 0.5 per cent decline for 2018 overall. Given the high margin on video distribution, this is concerning, and the run rate going into 2019 is worse than expected,” suggests the bank.

Indeed, the analysts state SES’s guidance of a 2 per cent decline in video in 2020 looks optimistic given current underlying trends: “We think there is a risk of further cuts to this guidance.”

But there is a ray of sunshine, given that the operators Networks division is shaping up very well. “While video disappointed, all three units within Networks delivered growth – even fixed networks, which was still in negative territory in H1. Granted there were some one-off project revenues that may not recur, but even so the performance of the overall Networks business was strong,” says Berenberg.

Drilling down into the various sub-sets of Networks, all is good. “Government up 19 per cent, Fixed Networks up 2 per cent and Mobility up 35 per cent reflects the bringing into service of SES-14, GovSat-1, and another four O3b satellites. 2019 will see SES benefit from SES-12, which recently entered service, and from another four O3b satellites, for which launch is scheduled at the end of this month. We are consequently comfortable with guidance for Networks in 2019 and 2020,” adds the bank.

Berenberg gives a price target of €20 for SES.


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