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Goldman Sachs downgrades Eutelsat

November 29, 2023

By Chris Forrester

Investment bank Goldman Sachs has downgraded its outlook on Eutelsat from ‘BUY’ to ‘Neutral’. It has also dramatically reduced its target share price from €14 to €4. The report prompted further falls in Eutelsat’s already under pressure share price.

The bank’s report says its reassessment comes in the wake of concerns regarding the financial implications of Eutelsat’s recent merger with OneWeb, with commensurate increased capital expenditure forecasts, and a highly competitive market landscape for satellite-based broadband.

Eutelsat’s share price suffered as Goldman Sachs analysts pointed to the potential negative impacts on profitability due to the OneWeb acquisition. The heightened structural costs associated with the development of low Earth orbit (LEO) satellite technology and the challenges presented by competitors like SpaceX’s Starlink have added to Eutelsat’s financial pressures.

The bank’s analysts raised concerns that the integration with OneWeb may not be as financially beneficial as previously anticipated. They predict a significant increase in capital expenditure, estimating an average annual capex of €840 million from 2024 to 2030, mainly due to rising operational costs. This forecast exceeds earlier projections and could potentially offset revenue gains expected from the merger.

The bank’s report also focuses on the importance of precise capital allocation and project timing for Eutelsat’s medium-term free cash flow, which it says is highly susceptible given the current economic environment of escalating interest rates. The analysts suggest that there is ‘limited’ potential for an upward movement in Eutelsat’s stock value, signalling investor caution as the company navigates through these challenges.

Eutelsat’s share price fell on November 27th and again on November 28th to €3.60 at one point (and closing at €3.73) and representing a 6.75 per cent fall over the past 5 trading days, and to a 52-week ‘low’ and a reduced market capitalisation of €1.8 billion.

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