Eutelsat’s Video built on “sound foundations”

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A report to clients from investment bank Berenberg says that Eutelsat’s cash-flow stability remains undervalued and underappreciated. It has issued a “BUY” note to investors and gives a target price of €13,30 (Eutelsat’s current share price is about €9.25).

Berenberg says Eutelsat’s core broadcast business – representing over 60 per cent of revenues – remained stable year-on-year.

The bank adds: “We believe many may be surprised to hear that, in contrast to peers, this revenue line has in fact stayed broadly constant every quarter for the past few years. Clearly, there is more turbulence within the data businesses – resulting in Q3 group revenues dropping 1.6 per cent year-on-year – but underlying trends improved sequentially. While near-term revenues will be a modest €20 million lower due to Covid-19, the impact on Free Cash Flow (FCF) is mitigated by delayed capex. We thus continue to believe Eutelsat shares are materially undervalued, particularly on a FCF and cash return basis, and thus reiterate our ‘Buy’ rating and €13.30 price target.”

The bank’s note argues that Eutelsat’s Video division is far more resilient than its peer competitors. “When it comes to satellite broadcast, we think it is an error to assume every country and application is subject to similar trends. Far from it, while SES’ and Intelsat’s recent video revenues declined c8 per cent and 9 per cent respectively, Eutelsat’s were flat year-on-year and actually increased sequentially. The reasons for this are clear, in our view. Firstly, Eutelsat has a different geographic exposure, with emerging markets accounting for 50 per cent of revenues – notably absent from the declining North American markets. Additionally, its end-customers are also predominantly in DTH distribution, the most resilient sub-vertical, in our view. Ongoing discussions with key customer Sky Italia will prove a major test to the segment’s resilience, but Eutelsat has navigated through many core broadcast contract renewals over the past few years without a noticeable negative impact on segment revenues.”

The bank adds: “After a tough few years, we had believed Eutelsat could return to growth in FY 2019. However, a poor government performance, delayed satellite launches and, of course, the coronavirus pandemic have pushed out this view, and we now expect growth could return at some point during FY 2021. (Eutelsat 2021 year begins on July 1st 2020).

“We believe the ongoing shift to HD in emerging markets, and to ultra HD in mature territories, are likely to continue to drive demand for capacity at premium orbital positions, with more mature regions continuing to face challenges,” says Berenberg.


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