Berenberg impressed by Eutelsat’s numbers

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A report from investment bank Berenberg says it is impressed by Eutelsat’s recent financial results and in particular the cash flow being generated by the satellite company. It recommends Eutelsat as a “Buy” to its clients, but also admit that in its past recommendations the bank has been “far from successful”.

“That is not to say that our thesis has not been correct,” states Berenberg. “In fact, free cash flow generation continues to surprise positively. What we had underappreciated, however, is that deep value is not enough if it is combined with any perceived lack of visibility. It is this latter point, however, that we believe is improving – as the company would have hit the guidance it gave at the beginning of the year would it not have been for the small Covid-19-related downgrade towards the end of the period.”

“We anticipate that shareholders will start to reward the company should this increased visibility remain, and we see little reason for it not to continue. Despite mid-single-digit Earnings Per Share downgrades (largely related to adverse Foreign Exchange movements), we keep our aggregate Free Cash Flow forecasts broadly unchanged. We reiterate our Buy rating with a modestly lower price target of €12.70,” says Berenberg.

Eutelsat is also in negotiation with Sky Italia over the contract renewals for some long-term transponder rentals. The bank says the renewal information, such as it is, sounds positive.

“Once again, Eutelsat’s core broadcast vertical, which represents more than 60 per cent of operating revenues, remained robust. On a constant FX basis, the company has now reported core broadcast revenues of €192 million – €198 million for the past 12 quarters in a row. This resilience is unique within the satellite broadcast sector and is a result of Eutelsat’s superior application and geographic exposure versus peers. The strength of broadcast is the key reason why Eutelsat has achieved more than €400 million of free cash flow in each of the past four years, and its predictability is very much underappreciated, in our view. While we prudently forecast a leg down on the back of the upcoming large Sky Italia renewal, management commentary gave us increased optimism as to the outcome of these negotiations,” states the bank’s report.

Berenberg rates Eutelsat s a “Buy” with a share price target of €12.70. Eutelsat’s share price closed at €8.70 on August 5.


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