Advanced Television

Bank: Firm ‘BUY’ SES advice

October 17, 2022

Satellite operator SES has seen its share price not only perform miserably (by any measure the shares are ‘in the toilet’ currently) but continuing to be under pressure. The deterioration has prompted a report from investment bank Berenberg. The bank issued very firm ‘BUY’ advice to clients, and giving a price target of €11.20. Currently SES shares are trading at about €5.90.

The bank reminds investors that around a year from now SES will receive almost $3 billion in FCC’s final incentive payment (“transformational”) and representing around 95 per cent of SES’s market capitalisation.

“Despite frustration at O3b mPOWER’s repeated launch delays, we feel the recent sell-off is overdone, and [we] remain comfortable with our Buy recommendation,” says Berenberg.

There’s another consequence and benefit from the current strength of the US dollar.

The bank says: “A 1bp reduction in the EUR/USD exchange rate adds c€8 million to revenue and €4-5 million to EBITDA, but is almost neutral at the cash flow level due to the offset of US dollar-denominated capex. However, each 1bp reduction in EUR/USD also adds c€20 million to SES’s post-tax C-band phase-two proceeds.”

The bank says that one worry that investors have is that SES might spend the FCC’s proceeds in some sort of Merger & Acquisition activity, and SES does little to deny this. Indeed, SES CEO Steve Collar has frequently stated his belief in industry consolidation.

Also a frustration for SES and its shareholders are the seemingly never-ending delays to the launches of the extra O3b mPOWER satellites. The bank says that the delays have been suffered for a 5th quarter-year in a row, but an end is now in sight. The first launch will happen next month.

The bank adds that four events have “spooked” SES investors:
· Eutelsat’s merger plan with OneWeb
· Starlink winning Cruise ship business from SES
· Rumours that SES might merge with rival Intelsat
· SES losing its 50/50 court case against Intelsat

On the upside, Berenberg expects SES to again raise its shareholder dividend payment by a further 20 per cent for 2023’s trading “and “growing progressively thereafter once the FCC payment is received”.

SES will unveil its Q3 numbers on November 3rd.

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