SES: “Struggling to square the circle”

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Comments from analysts at Berenberg Bank on satellite operator SES and its Q1 results are not positive. The bank says that while the overall numbers from SES were broadly in lone with expectations, and management has not altered its official guidance for the year, the bank thinks that there’s probably more bad news to come.

A major worry, says Berenberg, is the SES ‘Mobility’ division and in particular contracts that are in place with the various In-Flight communications and broadband suppliers as well as the Cruise ship sector. Both these were in good shape prior to the Covid-19 virus hitting the industry, and Berenberg suspects that Q2 will see a much greater impact on revenues for SES.

“SES will inevitably feel the impact, as it supports its most affected customers. We had already taken the view that SES will have to make concessions to its mobility customers, and recently Gogo has been vocal on this point. Customers are looking for help on cash flow, such as deferred payment and/or temporarily reduced volumes. However, there was no quantification of how this might affect full-year guidance, so while guidance still technically stands, it is effectively no longer valid,” stated the bank’s report to clients.

Berenberg says: “While management commented that mobility revenue will bounce back quickly, and even rise to above prior levels, it is prudently taking out €40 million – €60 million of temporary cost savings in 2020, which represents around 7 per cent of the 2019 cost base (ex-restructuring charges). SES is also cutting capex by an aggregate of €180 million over the period 2020-2024, with the savings backend-weighted, which does not really tally with management’s view that demand will return even stronger post-Covid-19.”

Currently, Berenberg has a “HOLD” advice view on SES and a price target of just €7.20 (SES share price is currently around €6.15 having risen 8.37 per cent on May 8th).

The one shining element – and which should bring around $4 billion in a special incentive payment from the upcoming FCC auction of C-band spectrum.

But even this positive news has strings attached. The bank says: “While the costs will be refunded, there will be a lag in such receipts, and the first tranche of incentive payment will not come until early 2022. While it is logical to consider the C-band project separately, ultimately this is one balance sheet, and we think SES remains vulnerable to downgrades if mobility volumes do not bounce back, if it is unable to close new business, and if end-customers become distressed. As well as mobility, video is clearly vulnerable in this regard, given the collapse in advertising revenues. We still believe that there is a good chance that SES needs to raise equity.”


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