Bank: “SES not ready to play”

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A major report on satellite operator SES from analysts at investment bank Berenberg is blunt and expresses doubt in the growth of its ‘Mobility’ division which the bank expects to suffer “materially” slower growth in its coming Q4 numbers and not aided by the pandemic hitting some of SES’s major clients (IFE operators Gogo and Global Eagle).

Not helping matters is that Gogo’s commercial aviation business is being bought by Intelsat, and probably resulting in Gogo inevitably becoming a less valuable customer of SES.

Of course, SES has an important high-margin revenue element in its Video division, but this is steadily declining. Berenberg says: “We assume that video distribution declines on an ongoing basis at €25 million pa. Additionally, in H2/2021 and H1/2022 there is the effect of the Viasat shift off the SES network, which represents SEK168 million in lost revenue for SES on an annualised basis. Overall, this translates into an organic decline of between 3-5 per cent per annum”.

Berenberg’s overall assumptions suggest a fall of some 4.7 per cent this year, then a further 1.2 per cent next year and then some growth in 2022 of some 1.7 per cent.

“Looking at how this compares with Eutelsat, the trajectory is similar, in the sense that in the current fiscal year we expect the French company to report negative growth of -3.6 per cent, although we expect a move into positive territory the following year (+1.6 per cent) with an acceleration to 2.5 per cent in fiscal 2023. So, on this basis, Eutelsat is one year closer to positive organic growth,” says Berenberg.

The bank also pours cold water on the prospects for – at least – European satellite consolidation between SES and Eutelsat. “it is not clear to us that the “European champion” aims of the European Commission would necessarily be achieved by a combination of SES and Eutelsat. While neither company is growing, neither can realistically argue that their business has collapsed and consolidation is crucial for survival.”

Separately, there is the question of governance. The bank asks: “Would the French government be prepared for Luxembourg to take charge (as is implied by the relative market capitalisations)? Would the Luxembourg government be prepared to have its stake so diluted? Would SES, which has pursued a B2B data-led growth strategy, want to take on a business that is still over 60 per cent video-dependent, and which has pursued a more B2C broadband route? Would Eutelsat want exposure to the still substantial US video business, which faces ongoing pressures? Clearly there are many questions to be answered here.”

Berenberg reiterates its ‘Hold’ rating, and with a price target of just €6.80.


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