Game over for CBA plan?

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The key satellite operators within the C-Band Alliance (CBA) are suffering a roller-coaster ride in terms of share value as the ebb and flow of news affects investor confidence – or lack of confidence in any meaningful upside.

January 29th, was catastrophic for Intelsat (down a massive 30.26 per cent) and SES (down 8.27 per cent) as news emerged that the FCC was likely to pay the C-Band Alliance $5 billion by way of an ‘incentive’ payment. The collapse in share prices was yet another nail in the coffin of the CBA’s plan.

Sami Kassab, a media analyst at investment bank Exane/BNPP, who has watched events these past months with eagle-eyed focus, now thinks that the $5 billion proposed by the FCC is just 26 per cent of his expectations for C-band proceeds and was significantly less than the 30-50 per cent range he expressed only last week following a series of meetings in Washington.

Kassab says: “Optimists may argue that this is the FCC’s opening gambit – the CBA may end up with more. We are skeptical.”

His worries are that the FCC, with this $5 billion payment, will decide to severely limit the amount of cash allocated to the CBA following an FCC organised auction. Indeed, there are also worries that the CBA could simply not proceed with a 5G freeing-up of spectrum.

He asks: Would you refuse an EV/sales payment of 20x for a structurally declining business? His answer was that: “Satellite operators could essentially be offered a $5 billion cheque for US C-band, a small (less than 5 percent of revenues) and structurally declining business. Will SES owners including the Grand Duchy of Luxembourg turn that down at the risk of derailing the US 5G roll-out and suffering retaliatory measures? While $5 billion does not solve Intelsat’s debt problem, we expect it would still kick the can down the road to 2023 and its $6 billion refinancing wall. Turning down $5 billion would also weaken the satellite operators’ legal case, in our view.”

Kassab has readjusted the bank’s financial thinking for SES. “We now assume $5 billion is the net incentive amount the C-band proceeding settles at. We cut our C-band value/share for SES from €5.2 to €3.2 and adjust our Target Price from €16 to €14, based on a core business valued on 7.7x (6x for Video, 10x for Networks).”

His downbeat conclusion states: “The C-band saga is coming to an end. Proceeds seem lower than expected but look less uncertain now and de-risk the dividend. With 20 per cent upside, we believe SES’s derating is excessive and remain ‘Outperform’.”


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