Bank: “SES searching for a flatter curve”

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Investment bank Berenberg has issued a report on the state of play at satellite operator SES. The bank says that with SES no longer separating its revenue splits between services and distribution (“which have notably different margin profiles”) they do not know what drove the operator’s Q1 results.

The bank gives its forecasts on future Video transmissions: “Our previous forecast for video assumed that the Viasat contract ended in June, as per previous Nordic Entertainment commentary; however, we now understand that this will not happen until the end of 2021. All being equal, therefore, our 2021 forecast should rise, but leave 2022 unchanged. Meanwhile, 2022 will also be affected by changes to SES’s wholesale contract in the US (we assume renewal, but at 30 per cent lower revenue), while from 2023, ITV plans to drop two transponders at 28.2E. Thus, while near-term video may look a bit better, the longer-term outlook remains challenging – indeed, as video revenues shrink, each dropped transponder has a greater impact on growth.”

Berenberg reminds clients that over the past few months SES has been guiding at meaningfully lower Capex spending but the bank asks whether SES can “meaningfully reduce fixed assets associated with broadcast, while maintaining its premium pricing”?

Indeed, the bank suggests that SES is looking more like Eutelsat over time. “Assuming management delivers on this “capex holiday” – and we note that there have been many false dawns in this respect across the industry – SES’s financial profile will look more like that of Eutelsat: good cash generation with a theoretical medium-term return to growth. However, as noted above, we remain cautious about SES’s ability to flatten the curve on video: it faces more near-/medium-term challenges in this regard than Eutelsat, we think. We prefer the relative security of Eutelsat’s cash flow today, given the structural questions that satellite continues to face.”

The bank rates SES as “Hold” but keeps its share price target without changing at €6.80. The bank says it prefers Eutelsat’s prospects.


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