Advanced Television

Bank favours SES, Intelsat merger

April 27, 2023

SES will announce its Q1 results on May 4th. Analysts from Berenberg Bank say that for the past six quarter-years the satellite operator has disappointed with at least two of its key deliverables. But the bank is still sticking to its ‘BUY’ rating, albeit with a slightly reduced price target for SES share price (of €8.70, from €9.20).

The bank says that SES’s management teams face a lack of investor trust. Specifically, the bank argues that a key pushback from investors is the risk that SES reinvests C-band proceeds, be this into M&A or the European Union’s IRIS² project.

“SES has done little to downplay talk of M&A, having repeatedly argued the case for consolidation, and indeed confirmed merger talks with Intelsat on 29 March. We think there would be significant, albeit long-dated, synergies from a merger of the two companies’ geostationary orbit (GEO) constellations,” says the bank.

Other past challenges are slowly being cured. First up is the imminent launch (probably on April 28th) of the next pair of O3b/mPOWER satellites. Next, later this year will be SES banking the FCC’s C-band Phase 2 incentive compensation of $3 billion (pre-tax) and equal to about 90 per cent of SES’s market capitalisation.

The third challenge is that SES returns to revenue and EBITDA growth, although the sub-text of the day-to-day trading is the weakness of the US dollar at the moment.

The bank expects SES video revenues (50 per cent of overall revenues) to again be under pressure and falling by 6 per cent and worse that Q4’s fall of 5.1 per cent.

Berenberg asks: “Will SES management make any further comment on M&A, Intelsat, IRIS², or C-band phase-two proceeds more generally? While M&A is always of interest, we believe that it will be under even greater focus than usual, given that SES confirmed on 29 March that it has engaged in discussions regarding a possible combination with Intelsat. To remind, Intelsat stands in line to receive $3.7bn in C-band phase-two proceeds around the end of this year, even greater than the $3 billion that SES is due to receive. We think there could be significant, albeit long-dated, synergies from a merger of the two companies’ geostationary orbit (GEO) constellations.”

The bank adds: “SES had a poor track record of achieving guidance for many years. However, more recently, it has been much better at delivering on its promises, which we believe should ultimately start to repair investor trust. However, while good at delivering on near-term financial guidance, SES also needs to launch O3b mPOWER services, in order to return to growth.”

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