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Eutelsat+OneWeb: “Disappointing valuation” says bank

July 29, 2022

Investment bank Exane/BNPP, in a comprehensive report on the proposed merger between satellite operator Eutelsat and Low Earth Orbit constellation OneWeb, says the “increase in interest rates, inflation, the war in Ukraine, [OneWeb] Gen 2 funding requirements all suggest a bit of patience could have improved the financial outcome for minority shareholders… but the new EU space policy apparently has precedence”.

Analyst Sami Kassab, author of the report, says the bank believes the timing of this deal has to be seen first and foremost in the context of the new European space policy and of the French government’s geopolitical agenda. Nevertheless, he describes the merger as “profoundly changing the economic model of Eutelsat”.

“We have also been disappointed by the lack of financial disclosure on OneWeb. A more detailed business plan with capex requirements and revenue guidance would have been welcome,” says the report.

He suggests that the future might see the likes of LEO players SpaceX and Amazon’s Kuiper could be seen as potential acquirers of geostationary operators and names Intelsat and Viasat as possible candidates.

He also explains that the European Commission is in the process of developing a new space policy marked by the creation of a European secure satellite communications network. The war in Ukraine is likely to have increased the political appetite to use public funding to develop such a new system. France has been particularly supportive of the EU project. “Note that France is the second country with the most orbital spectrum rights at the ITU, behind the US but ahead of China, Russia, Germany, the UK, etc. Ariane, Airbus, Thales, Eutelsat are all global leaders in the space industry and are French, not German nor British.”

Kassab adds: “We wonder what explains the timing of this announcement? Eutelsat core business does not seem to be deteriorating at a faster pace than expected. Its FY23 revenue guidance was broadly in line with consensus and has us cut our forecasts by less than 2 per cent. Management has reaffirmed its guidance for a return to revenue growth from FY24. It guided for solid FCF generation over FY23 and FY24.”

He stresses that the bank continues to believe that this deal makes strong strategic sense as it improves the technology infrastructure and competitive positioning of Eutelsat in the age of the mega constellations.

The bank estimates that OneWeb is to generate 6 per cent of group combined revenues in FY23 growing to 56 per cent in FY30.  “We forecast that OneWeb will turn a €161 million EBITDA loss in FY23 and a €1.3 billion EBITDA in FY30. Assuming Eutelsat carries the full financing of a total capex envelope of €3.5 billion for Generation 2, we estimate that OneWeb FCF to Equity will be negative until FY29. We note that our forecasts are highly sensitive to the hard to predict pace of the revenues ramp up. We have assumed a total of 700Gb/s of leased throughput by FY30 (vs. 1.1Tb/s for SES mPower) on average pricing of $200 per Mb/s per month (the same as for our SES mPower modelling).”

Exane/BNPP adds that with the deal likely going ahead, “and with OneWeb soon to be owned and controlled by a French operator, we believe its satellites are to be eligible to become the European LEO layer that the EU project was missing. Not only is OneWeb to be controlled by a French company, but we note that 4.3Ghz of the 6Ghz the system uses are frequencies that the ITU has assigned to France and that the French government have granted to OneWeb.”

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