Anxieties over Eutelsat’s upcoming numbers

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Eutelsat will unveil its Q3 numbers (to March 31st) on May 14th and at least one investment analyst is concerned that shareholders might be in for some bad news. Consequently, Deutsche Bank is recommending that shareholders ‘SELL’ their stock.

Deutsche Bank says that last week’s SES results, where its Video division saw revenues tumble 8 per cent (y-o-y) creates concerns for Eutelsat. The bank says: “There were more concerning indications of cuts from (some SES) European clients upon renewal of contracts; a UK contract mentioned and the Nordic Entertainment Group (the MTG pay-TV spin-off) saw lower renewal value, we understand.”

“Eutelsat and its [supporters] argue its major Video clients are less advanced than SES and this is why it can return to “broadly stable” this fiscal year and “slight growth” thereafter. But the cuts SES is experiencing are just pain deferred for Eutelsat and we expect this to start with the Sky Italia renewal (expiry in 2020/21 but we expect renegotiation in advance of this), followed by Nasper’s spin-off of Multichoice.”

Another worry that the bank has is comparing and contrasting the success SES is enjoying from its Government/Military and Fixed data contracts. This success is helped considerably by the fleet of 20 Medium Earth Orbiting (MEO) satellites in its O3b division. Eutelsat dos not operate MEO satellites.

Deutsche Bank quantifies these successes and warns that the market could be concerned that these areas could also be a source of negative surprise in Eutelsat results. “SES and Eutelsat have shown diverging trends in these two areas. SES 2018/1Q of +6%/-1% in Fixed data compares to Eutelsat’s fiscal 18/1H19 of minus 10%/-12% and, in Government, SES’s +16%/+10% compares to Eutelsat’s flat/+2%.”

The bank is blunt, saying that Eutelsat’s guidance for the rest of its trading year (to June 2020) will need to be cut “if not at 3Q results then at full-year results in July. Fiscal 3Q (results on May 14th) will be the quarter when this starts to look unrealistic. The stock might be back to all-time lows, but with guidance needing to be cut, consensus needing to fall and risks to CAPEX moving from positive to negative surprise with the announcement of LEO trials , this stock can go lower.”


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