Analyst on SES: “Read between the lines”

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Investment bank Jefferies issued its report on the SES results and advised investors to “read between the lines”.

While admitting that the day “was painful” for the company, analyst Giles Thorne added: “In our view, [the day] will be looked upon in time as the day SES signalled structural solutions to its structural problems, namely: functional and legal separation of Networks so as to better highlight its merits while de-risking its capex; and the creation of a Video RumpCo ahead of industry consolidation.”

However, the market’s view of the SES numbers and prognosis was nothing less than horrible. SES shares ended the day (March 2nd) down a worrying 30.3 per cent at €7.21, and the lowest price since 2004.

Jefferies have a Price Target for SES of a respectable €26/share, but the 30+per cent collapse on February 2nd means that the bank’s target seems a long way off. Indeed, it is a question of whether this normally industry-leading stock can ever recover.

Another analyst, Laurie Davison, from Deutsche Bank summed up the results saying that the day was “ugly”. He said that the Dividend cut was “worse than we had feared,” and added that splitting ‘Networks’ from ‘Video’ could lead to an eventual merger between Eutelsat and the SES Video business – and potential synergies worth around 20 per cent.

While reviewing the various options explained by CEO Steve Collar, the Jefferies’s note said the operator’s ‘Simplify & Amplify’ strategy is “Positioned as an evolution of principles and direction laid down in 2017.

“We see the following as the most pertinent elements and our reading of what’s going on between the lines: a potential functional / legal separation of Networks within SES, with potential for Networks to access external capital (reading between the lines: surely a IPO of the business to better mark-to-market its credentials; primary / partner capital to fund the mPower capex peak; leave Video equally separated to realise the now increasingly timely Eutelsat merger) and operational focus (reading between the lines: rightly so, there’s a huge opportunity ahead of mPower, at a time when infrastructure competition is set to increase i.e. the LEOs); a focus on core strengths (DTH, FTA, mobility, government) and “stop doing what others can do” (reading between the lines: the final curtain on the deeper push into Video services); and EBITDA optimisation equal to €40-50 million annually from 2021 (reading between the lines: a self-help programme that is a natural by-product of the aforementioned re-focusing of the business),” said Thorne.

The analyst also included comments on last week’s FCC decision on C-band, saying: “With Friday’s narrow 3-2 vote by the Commission to approve the draft order, the endgame continues on its current trajectory. Out of the former C-Band Alliance members, only Intelsat has signalled it could challenge the Order. Outside the CBA, the balance of notable naysayers (Senator Kennedy, 2 Commissioners, the SSO Association) is offset by backers (3 Commissioners including the Chair, Senators Wicker and Thune, 3 of the 4 CBA members). In today’s release, SES is very much looking to the future – we note: a major statement of support for the plan; creation of a dedicated team for clearing the band; and first official guidance for the use of proceeds (pragmatic deleveraging, targetted investments and returns to shareholders).”


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