SES & Eutelsat “merger prospects higher”

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A research note from Deutsche Bank in anticipation of the upcoming end-of-year results from SES (due on February 26th) again talk up a merger between SES and its smaller rival Eutelsat.

The bank’s media analyst Laurie Davison says he now sees the prospects of a merger between the two satellite operators as “higher” and cautions that Eutelsat could again give the market a cut in their revenue guidance. Eutelsat’s full-year ends on June 30th

He adds: “Eutelsat management is now performing a private equity approach in public markets and SES is pricing in close to zero for C-band proceeds after the fall in stock [price] following the FCC announcement in November. But we would look to full-year results as an opportunity and advocate using any stock fall on a potential dividend cut to add to positions.

Davison says that there’s an implied upside of 46 per cent on SES which is “compelling” after the November FCC related share price falls. “We expect a solid 4Q and consensus is undemanding, already below the lower end of guidance, for next year too. But there is still some risk of a negative reaction to a dividend cut.”

Davison admits that Deutsche Bank is the only investment bank to suggest that SES might cut its dividend to shareholders, always a bad move for the market. He talks about the dividend being trimmed from €0.80 per share to €0.60. If this happens this would mean SES would have cut its dividend dramatically over the past few years. As recently as 2016 it was paying €1.34 per share to investors.

He says: “Our conversations with investors over the past month have shown some awareness of the [dividend] risks. But for a historically yield-driven name, there is downside risk. We value the underlying [value of] SES at €11 and, including C-Band [windfall revenues], our Target Price is €18; implying 46 percent upside potential.”


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