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Bank upgrades SES

January 16, 2023

SES’s share price is currently at about €6.60, itself an improvement on typical prices of nearer €6.18. But a report from analysts at Berenberg Bank recommends clients ‘BUY’ SES and gives a target share price of €9.20. Good as this sounds (for investors) the new target price is lower than the bank’s previous guidance (which was €11.20) and largely down to the recent weakness of the US dollar when measured against the Euro. The bank also suggests that SES will further improve its dividend to shareholders next year (possibly by an extra 20 per cent).

SES will deliver its Q4 results on February 27th.

Berenberg says that SES has a busy year ahead and must deliver on three key elements during its financial year:

  1. Make more progress with its O3b/mPOWER fleet, and start earning revenues
  2. Deliver improving revenues ahead of a return to growth in 2024
  3. Tell the market more about its plans for the $3 billion of FCC proceeds due at year-end

The bank admits that progress on the SES O3b/mPOWER fleet was slower than initially anticipated and not helped by Covid-related production delays, noting: “The launch of the first two satellites on 16 December therefore marked an important step. As well as financial guidance for 2023, a key area of focus at the Q4 results on 27 February will be whether the current launch schedule remains on track, supporting a commercial launch of O3b mPOWER in Q3.”

As to the bank’s comment about SES delivering improving revenues, it states that SES has gained revenues because of the strength of the US dollar, but those benefits have softened in the past few months. “Networks revenue declined in 2020 and 2021, largely due to Covid-19, but growth has now returned and should accelerate as O3b mPOWER come into service,” says Berenberg.

The bank expects SES once-important video revenues to continue to be in long-term decline (and falling -6.6 per cent in its Q4/2022 numbers). However, the bank says the rate of decline “has actually been in line with to slightly better than expectations over the last few years, meaning consensus has broadly stabilised”.

The bank adds: “[The FCC’s] C-band phase two proceeds will be received either in early 2024 (as we model), or possibly in late 2023; this de-gearing will provide SES with significant strategic optionality.”

“While M&A is always of interest, we believe that it will be under even greater focus than usual, given the planned Eutelsat/OneWeb merger, August’s press reports that SES was in talks with Intelsat, and the C-band phase-two proceeds now being only a year away. In the coming quarters, we believe that SES will come under growing pressure to be more explicit about its plans for the C-band proceeds,” says Berenberg.

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