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Bank: “Eutelsat likely to outperform”

April 15, 2020

By Chris Forrester

Last week Eutelsat issued an update to its guidance for the year and in particular noting the impact of the Coronavirus, and announcing a 30 per cent cut in its annual dividend.

Analysts at Berenberg Bank have now crunched the new information and in an April 14th note say that the effects of the update are “very manageable” and suggest that Eutelsat’s balance sheet remains strong and the bank issues a “Buy” recommendation which they say investors should not ignore given the remaining 9 per cent dividend yield.

The bank says the dividend cut was a “measure of prudence” by Eutelsat and that the operator’s stable-to-progressive dividend policy will be resumed as soon as circumstances permit, given the company’s ‘resilient cash-flow generation and robust financial health’.” The bank’s message to investors is that Eutelsat is likely to outperform in volatile markets.

Looking in detail at Eutelsat’s revenue picture and debt obligations, the bank says: “Eutelsat’s leverage sat at 3.2x at end-December 2019, which we forecast to fall before year-end, providing substantial headroom to its 4.0x debt covenant. It has no maturities before June 2021 (€500 million bond), combined with a strong liquidity position at end-December 2019 with cash of €373 million and undrawn credit lines of €798 million, of which €300 million was drawn in the course of March in order to give additional security.”

Berenberg adds: “We also believe that a strong relationship with the French government (and state-backed shareholding) means there are political considerations also taken into account in this decision.”

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