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SES expectations “too optimistic”

July 5, 2019

SES is due to report its H1 results on July 26th for the 6 months to June 30th, but investment bank Berenberg is reducing its expectations and share price target, stating bluntly: “We think SES’s full-year guidance is too optimistic. We cut our numbers for both the video services and networks divisions. The net result is a 3 per cent cut to our revenue estimates this year.”

Berenberg added: “Our fundamental 12-month fair value falls to €11.8, which is below the current share price and confirms the importance of securing a favourable outcome from the re-farming of the C-band spectrum. Our new price target of €15.6 assumes €4.7 per share in this regard.”

The bank’s report to investors said: “After a 7.8 per cent decline in Q1/2019 and a €10 million headwind to revenue in Q2, which last year benefited from accrued accounting changes relative to IFRS 15, we think management may still be too optimistic about video. We cut growth to 7.4 per cent for FY 2019 as a whole, including the aforementioned drag from last year’s revenue adjustment. Meanwhile, networks guidance also looks difficult to achieve. Per pre-close management commentary, Q2 is likely to look not dissimilar to Q1, with SES-12 not yet contributing much revenue. Even with the Teleglobal agreement and the entry into service of the new O3b satellites, we think SES will struggle to deliver the guidance without a large amount of periodic (non-recurring) revenue. We forecast 2 per cent growth in 2019.”

Berenberg is also ultra-cautious on the potential ‘windfall’ proceeds from the C-band realignment over the US, saying: “We have long been cautious as regards the net proceeds to the CBA’s of re-farming the C-band spectrum. We continue to believe that bulls are too optimistic about the proportion of the spectrum proceeds that will be retained by the CBA. What is interesting is that Intelsat’s share price appears to be pricing in c$6.5 billion – $8 billion of net proceeds, whereas we think SES is reflecting c$2.1 billion. This may create an arbitrage opportunity between the two.”

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