Bank: SES up, Eutelsat down

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Investment bank Berenberg has issued two timely reports on Europe’s pair of major satellite operators ahead of their results. The analysis was good news for Luxembourg-based SES but less rosy for Paris-based Eutelsat.

For SES the overwhelming positive news was the operator’s share of the FCC’s ‘incentive’ payments for freeing up C-band frequencies over the US.

“SES is due to receive post-tax C-band proceeds equal to 80 per cent of its market cap over the next two and a half years. We believe this creates significant optionality for shareholder returns, balance sheet repair, and disciplined investment,” states Berenberg.

The bank raised its advice to clients as regards SES to ‘BUY’ saying: “We recognise the challenges facing largely geostationary orbit (GEO) players SES and Eutelsat, and expect video revenues to continue to decline in the long term. However, SES’s capex in 2021 and 2022 should support accelerating network revenue growth, which along with Covid-19 headwinds easing, should enable it to achieve its growth guidance in 2023.”

Berenberg is not quite so positive about Eutelsat, stating: “Questions about the long-term future of broadcast revenues are likely to persist, while the timing of Covid-19 headwinds easing, allowing the smaller growth drivers to flourish, remains uncertain. Given these challenges, despite their obvious value attraction, we would feel uncomfortable having both companies on a Buy recommendation. Despite broadly similar investment cases overall, we prefer SES due to its larger exposure to C-band clearing, which we believe will transform its balance sheet over the next two and a half years. As such, we downgrade Eutelsat to ‘HOLD’ (from ‘BUY’), despite our price target remaining above the current share price.”

“The evolving requirements of this move towards data, such as sensitivity to latency, are likely to result in GEO constellations achieving much lower growth than those in low- (LEO) or medium-earth orbit (MEO). It is for this reason that Eutelsat this year decided to invest $550m in a 17.6 per cent stake in LEO constellation OneWeb, and that SES took full control of MEO constellation O3b in 2016. Given the challenges facing the fragmented GEO sector, some consolidation is also possible,” adds Berenberg.

“We prefer SES due to its C-band exposure: While most elements of the investment cases are similar for Eutelsat and SES, C-band is a differentiator. Over the next two and a half years, SES should receive post-tax proceeds equal to 80 percent of its market cap for vacating the C-band in the US, versus 15 per cent at Eutelsat. This is the main reason for our Buy on SES and Hold on Eutelsat,” concludes Berenberg.


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