Bank: Still some CBA upside
January 31, 2020
By Chris Forrester
In what has been a torrid time for the world’s two largest satellite operators (SES share price down 10.9 per cent and Intelsat 17.7 per cent on January 30th), one bank report has a tiny glimmer of positive news for the C-Band Alliance (CBA).
The losses, in terms of share value is massive. For example, Intelsat has crashed from $26 a share to just $3.11 since November 2019.
There was some highly vocal support from US lobby group ‘5G Action Now’ which demanded “fair cooperation” from the FCC on the CBA’s proposal. “Winning the 5G race against China is crucial for our national security and economic leadership; speed in developing and deploying 5G in the C-band is essential to accomplishing that. [We] support fair cooperation between the FCC and the satellite companies that use and have invested $50 billion in the C-band over the past 40 years.”
Intelsat also suffered a collapse in the value of its issued bonds. They were the most traded corporate debt on January 30th, with $830 million trading hands, and now down in value to 43 cents on the dollar, and down from 71 cents last week.
Dianne VanBeber, VP/Investor relations at Intelsat, told the Wall Street Journal on January 30th that Intelsat had a fiduciary duty to its stakeholders and could not surrender the value of its rights for less than the market value.
Deutsche Bank, in its note to investors, admits that any prospect of large scale ‘windfall’ revenues looks dim, it also says that on a positive note, the FCC is considering relocation expenses of $4-5 billion which is higher than the CBA’s initial projections of $2.5-3.5 billion. It is also positive that the FCC seems minded to publish draft proposals for the auction at its February meeting, which should provide greater clarity.
The bank, especially considering the collapse in the SES share price, not unreasonably now believes that SES is a ‘BUY’ for those investors not already bankrupted by satellite losses. The bank says: “We value the SES underlying business ex-C-band at €11; this implies close to zero value for proceeds. We were more sceptical than the market was over C-band, but we still see €8p/sh value for SES. The combined €18 target price offers 52 percent upside. The parity with Eutelsat on a relative valuation undervalues SES’s superior growth prospects. SES has invested heavily, and further MPower investment is captured in our valuation. This should mean the group can hold top-line [performance] despite structural headwinds. A DCF now implies 7 percent terminal decline, which is far too harsh.”
Deutsche Bank also mentions again its view that some merger activity is much needed. “SES would be the larger entity in any combination with Eutelsat or Intelsat. It would own and realise the majority of synergies in any merger combination.”
With the CBA proposal probably in its death throes we are in a period of maximum uncertainty. No doubt the powers-that-be at the CBA are busy contemplating their next steps.
As one wise commentator (from investment bank Jefferies) said before the Christmas holiday: “The FCC certainly has the authority, but the adherence to due process would afford the CBA countless opportunities to defend its interests at the expense of expediency (and all the while the MNOs would be barracking the FCC for its fecklessness).
The FCC is expected to reveal its plan formally on – hopefully – February 7th.
Intelsat’s Full Year numbers will be released, along with its quarterly commentary on February 18th. SES will announce its Full Year results on February 26th, and more detail on its thinking should emerge.