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Bank: Does Eutelsat, OneWeb merger make sense?

February 28, 2023

Investment bank Berenberg, in a report on Eutelsat, says the Paris-based satellite operator is struggling to persuade investors that its merger with OneWeb makes sense.

“The transformative deal, first announced in July 2022 and planned to complete in calendar Q2/Q3 2023, changes Eutelsat’s investment case from a highly cash-generative, dividend-paying value stock to a non-cash-generative, non-dividend-paying growth company,” says Berenberg. “We believe that the scale of near-term earnings and cash-flow dilution, alongside the increased risk profile, is likely to put off most traditional satellite and telecoms investors in the near term.”

The bank has maintained its ‘Hold’ advice to investors but has slashed its target price for Eutelsat shares from €11.60 to just €7.10.

Indeed, the bank adds that Eutelsat’s H1 results “suggests little reason for excitement in the coming quarters”.

“In its largest revenue line, broadcast, Eutelsat guided that trends will be worse in H2 than in H1 as the impact of sanctions against certain Russian and Iranian channels becomes visible in financials, which was the cause of December’s revenue warning,” states Berenberg.

Perhaps more worrying is the bank’s view that the 50/50 merger with OneWeb is “hard to justify”.

“Eutelsat is an established and cash-generative business that also already owned 22.9 percent of OneWeb, while OneWeb is a loss-making start-up, with considerable capex demands to fund a Gen 2 commercial launch by 2028 (the required capex for Gen 2 is expected to be c€4 billion),” the bank reminds clients.

The bank’s report is blunt, saying that the “mix of synergies [between Eutelsat and OneWeb] is low-quality, in our view”.

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