Investment bank Berenberg has downgraded satellite operator SES from ‘Buy’ to ‘Hold’. The bank has also reduced its share price target from €7.20 to €6.80.

The bank’s report says that it believes that the operator’s cash warchest, made up of the receipts of the $3 billion from the FCC as compensation for releasing certain C-band satellite frequencies for reuse in the US for 5G will likely be reinvested rather than partly returned to shareholders.

“We were disappointed at the full-year results on 29 February by the lack of additional shareholder returns from C-band proceeds. Management committed to providing more commentary at the H1 results in August, but stressed that it will also evaluate inorganic options, as well as ‘organic investments, big projects that potentially could give us an extension to our constellations, strengthening our future networks’. Given this pro-investment rhetoric from new CEO Adel Al-Saleh, we worry that the shareholder returns element of messaging at H1 could again disappoint,” said Berenberg.

The bank explained its previous stance, saying: “We have always been clear that the main reason for our ‘Buy’ recommendation was the proceeds that SES was receiving in exchange for clearing C-band. With these proceeds largely received, other than $450 million of remaining cost reimbursements, now is a logical time for us to reassess our stance. We conclude that SES faces a challenging backdrop, with ongoing Video decline and launch slippages making for a difficult investment case, while we believe the new CEO is also likely to pursue a reinvestment agenda, rather than returning the majority of C-band proceeds to shareholders. We acknowledge that SES is cheap, but do not view that as reason enough to remain positive. We therefore downgrade our recommendation to ‘Hold’ (from ‘Buy’) and reduce our price target to €6.80 (from €7.20 previously).”

The report highlighted the ease at which SES rewards management, saying that ‘management churn’ is proving costly to the company. Berenberg reveals that former CEO Steve Collar was paid €1.6 million, equivalent to “two years of annual base salary as contractual severance payment” upon his departure, and that the new CEO has received €5.3 million in one-time remuneration and reflecting payment for his share entitlements for his time with Deutsche Telekom.

The new CEO’s (Adel Al-Salah) remuneration package is 45 per cent higher than Steve Collar’s “despite the fact that SES is a smaller company now than when Steve Collar became CEO in 2018”.

Other posts by Chris Forrester:

1. Virgin Galactic in stock split
2. Thuraya-3 suffers major problem
3. AST SpaceMobile hit by Class Action
4. Optimism under threat at SES
5. Rivada visits Terran Orbital’s manufacturing HQ
6. Avanti wins spectrum debt obligation case
7. SpaceX breaks records for re-use launchers
8. IRIS2 already in trouble?
9. Intelsat contemplates next steps

Categories: Blogs, Business, Inside Satellite

Tags: bank, berenberg, SES, steve collar