Eutelsat is taking a 24 per cent stake in OneWeb. Eutelsat’s fresh cash values OneWeb at $2.3 billion. However, Eutelsat is paying a significant premium to enter OneWeb.
When the UK government and India’s Bharti Global invested their cash into OneWeb they placed their $500 million into the business and received 42 per cent of the company’s shares.
Investment analysts at Jefferies say that the industrial rationale for Eutelsat looks sound, commenting: “After all, latent demand for connectivity keeps building, communities continue to be underserved, spectrum continues to be available to fuel a bridging of the digital divide, and low-earth orbit is a virgin frontier in high-throughput. Eutelsat has reiterated much of what we have heard from OneWeb, that it will address Fixed Data, Government, and Mobility applications in a completely wholesale B2B model.”
If the industrial rationale looks good then the bank suggests the strategic rationale is also sound. Jefferies adds: “Eutelsat has resources (regulatory, technical, commercial) that can afford OneWeb the type of heft it needs to become viable. Eutelsat’s heritage is decidedly geostationary, with its ambitions in consumer fixed broadband well served by its investments to date. But the greenest fields of growth lie outside Eutelsat’s current asset base. And Eutelsat benefits from OneWeb’s c.$5 billion of invested capital to date (though there is still c.$0.5 billion of funding to be raised), Eutelsat has said it anticipates being diluted to c.20 per cent), the opportunism of funding OneWeb out of bankruptcy, and OneWeb’s priority spectrum rights.”
The bank applauds Eutelsat’s ambition, but also cautions that investors are likely to be denied an uplift in Eutelsat’s current low dividend pay-outs. Using the $507 million of FCC ‘incentive’ payments as its investment fund makes sense, but so would an uplift to Eutelsat’s dividend.
Jefferies also reminds clients that it was barely a year ago that Japanese conglomerate SoftBank withdrew its funding and was a catalyst in driving OneWeb into bankruptcy. “And during the [April 27th] analyst call, there was no evidence that the various Achilles heels of HTS-LEO have been resolved,” said Jefferies.
Jefferies gives a price target for Eutelsat shares of €18 – they closed on April 27th at €10.87, and opened on April 28th at €10.97.