More upside on C-Band Alliance

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A leading satellite analyst, in a comprehensive report, has said the potential financial benefits likely to flow from a ‘market-based approach’ to selling 180 MHz of C-band spectrum over the US are “far from priced in” to the 4 satellite operators involved.

The quartet are Intelsat and SES (with some 90 per cent of the spectrum between them) and Eutelsat and Telesat controlling around 10 percent between the pair.

Investment bank Exane/BNPP and its analyst Sami Kassab says “We still believe that the C-band opportunity is far from priced in. The US Treasury is likely to take a 30 per cent cut but spectrum volumes and pricing could surprise on the upside. US mobile telcos’ pricing assumptions and Germany’s 5G auction provide support. We see €8.6 spectrum value for SES and €1.9 per share for Eutelsat. That is €1/share less than before but still not priced in.”

“SES and Eutelsat shares have underperformed the market by 21 per cent and 19 per cent year to date, respectively. This looks excessive. Weaker video top-line trends are mitigated by rapidly falling capex. Operators are making progress in diversifying away from Video into new market opportunities. Equity FCF yields of c10 per cent are attractive. Eutelsat (+) is our preference going into Q1 as we expect a positive surprise on tax and improving revenue trends. SES (+) offers an attractive play on C-band after the Q1 results. Inmarsat (=) is likely to be taken private but industry consolidation at scale is unlikely.”

Kassab admits that satellite industry fundamentals remain difficult (to value). “[The fundamentals] point to pressure on SES but solid short term trends at Eutelsat in terms of video capacity consumption. Longer term, we lower our Video revenue forecasts for both companies due to the rising risk of further video capacity consumption reduction. Satellite capacity pricing remains under pressure in 2019 but this should be offset by continuing volume growth in Data & Networks and further capex reductions.”

“C-band is the silver lining and remains under appreciated by the market, especially after the recent jitters on timing and value leakage. Our updated valuation work now models the US Treasury receiving 30 per cent of the auction proceeds but still points to higher per share values for Eutelsat and SES than the market currently discounts. European satellite shares look oversold with Eutelsat and SES underperforming the market by 21 per cent and 19 per cent respectively year to date. While we would wait until after the Q1 results to buy SES on the C-band story, we favour Eutelsat as we expect positive news on its video revenue trend and the disclosure of a sustainable, significantly lower tax rate.”


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