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SES readies to divide company

August 10, 2020

Giles Thorne, an equity analyst at investment bank Jefferies, said the SES results prompted a review of the satellite company’s prospects. Jefferies now rates SES a “Buy” with a share price target of €16 (they ae currently around €6.30).

SES CEO Steve Collar had reminded analysts on the results call that SES is now carrying a total of 8200 TV channels and 1200 more HD channels than its nearest competitor. SES now had 300 people working on the company’s North American C-band conversion tasks ahead of the implementation of the FCC’s plan.

Importantly, later this year SES will decide whether to split itself into two, one half focusing on Video, the other looking after the Networks and related divisions. Thorne says: “It’s our published view that a possible IPO is on the cards, which will allow the company to better mark-to-market its growth credentials.”

Thorne added that the SES is now clearer as to the financial objectives and benefits from the upcoming C-band transition over the US. “On 26 May, SES elected to clear a portion of the C-Band spectrum in the US. The clearing will require an investment of c.$1.6 billion, of which $1.5 billion will be reimbursed. The remaining $80 million of total non-reimbursable costs will impact FY/2020 EBITDA by €30 million and then slightly decreasing over FY2021-2023. SES will then be entitled to receive up to $3.97bn in accelerated relocation payments:

1) $0.98 billion earned in 4Q/21 and expected to be paid in 1Q/22; and
2) $2.99 billion earned in 4Q/23 and expected to be paid in 1Q/24.

“SES has elected to use the first payment to strengthen its balance sheet, while the second payment will be used as a mix between return to shareholders, investments and strengthening the balance sheet. Management expects a 20-25 percent effective tax rate on the C-band proceeds, closer to ‘the low end of the range’,” suggests Thorne.

Roshan Ranjit, a satellite equity analyst at Deutsche Bank said in his August 7th research note for clients that he was positive about the SES results despite the potential Covid-19 headwinds. “SES has announced Q2 recurring EBITDA 10 percent ahead of consensus and 9 per cent ahead of Deutsche Bank estimates top end of range forecasts,” said Ranjit. “The company has lowered guidance for the full year following a review of potential headwinds from Covid, but we note consensus was already below the low end of the previous range and is now in line with the revised guidance range. Overall – A reassuring revenue print with the core video business holding up well and a strong recurring EBITDA performance. The lowered guidance is in line with consensus, so broadly anticipated.”

Sami Kassab, equity analyst at Exane/BNPP, in his “solid” summary on SES told clients that SES management were “confident that they could compete on prices and technology features with both OneWeb and Starlink, its two most direct competitors going forward.”

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