[Satellite News 11-22-10] Natixis Securities satellite equity analyst Eric Beaudet has given a ringing endorsement of the satellite industry in a new report on the sector issued Nov. 19.
    The report, titled ‘Satellites: 2011 Looks Like Another Vintage Year!’ said the industry is in good shape as we head into 2011. “Indeed, though the shares for the various players have outperformed their benchmark stock market indices over the last two years, this looks fully justified in view of there earnings growth,” Beaudet said in the report.
    Natixis believes the satellite sector remains an attractive one for investors. “The geostationary satellite operator segment, fixed or mobile, remains a very attractive niche for investors. Indeed, it enjoys major barriers to entry (regulatory and capitalistic) and to exit (captive clients), offers sales recurrence and visibility and, thanks to its fixed costs structure, offers major leverage impact on margins, rises in ROCE and attractive returns for shareholders. Finally, given the strong current demand and growth prospects over the next few years, the main risk hanging over the sector – i.e. the emergence of overcapacity stemming from both a rapid downturn in demand, combined with a rise in supply (satellites being ordered three years before their launch) – looks very slight at present,” he said. 
    According to Beaudet, demand is strong across the board. The sector surged over 10 percent in the last five years for both the FSS and MSS segments. The Satellite Industry Association previously reported that the FSS and MSS segments grew by 11.1 percent and 4.1 percent, respectively. “The potential for the main growth relays at the origin of this sound performance, whether in the surge in the number of TV channels, the ramp up for HD TV for the FSS, or the development of broadband solutions by satellite for the MSS segment, is far from exhausted,” says Beaudet.
    Natixis issued a ‘buy’ rating on SES, reassured by confirmation that organic growth is picking up after a sluggish 2009, Beaudet said. “After sending four new satellites into orbit, the group was able to take advantage of the buoyant market and generate 4.7 percent organic growth during the first nine months of the year. The group’s Infrastructure division delivered an EBTIDA margin of 83.4 percent over this same period, so we are confident that the group will easily meet or even beat its 2010 guidance targets (4 percent to 5 percent organic growth, infrastructure EBITDA margin of over 82 percent).”
    Natixis is equally bullish about Eutelsat. Despite the loss of the W3B satellite, Beaudet said the prospects of Ka-Sat, set to launch in December, could help tap more into broadband markets going forward. “Much is riding on this satellite. In contrast to its normal business of leasing capacity to its clients, generally with long-term contracts, and irrespective of their fortunes, Eutelsat will, in the case of the Ka-Sat satellite, be directly exposed to commercial performances, with payment in proportion to a share of the subscription price paid by the final client. The remainder of the revenue goes to the telecoms operators, which will handle distribution and promotion. The revenues generated by Eutelsat will thus be dependent, for the first time, on the final number of subscribers. If this satellite broadband offering proves to be a hit, Ka-Sat could provide a significant return on investment for Eutelsat. But the fact remains that it will be much more vulnerable to economic trends.”
    Natixis Securitis also issued Inmarsat a ‘buy’ rating, due to its young fleet and surplus of free capacity. “Inmarsat has in recent years been able to market many new services for its historical activities (BGAN) and address new markets with its IsatPhone. Migration to new products might penalize revenues in the short term on account of lower voice service prices, but the new data services offered will, on the other hand, boost revenues in the medium term.”
    Despite its share price dropping by more than 20 percent since peaking in June, Beaudet believes Inmarsat is in a good position to meets it targets over the next few years. “We believe the reasons for [the drop] are as follows: a core shareholder partly withdrew from the group’s share ownership (Harbinger Capital sold a 14 percent stake on the market in October) and the group announced that it will be investing $1.2 billion over the next four years to develop a constellation of 3 Ka-band satellites, which will take a heavy toll on the group’s cash-flows in the short term and thus reduce potential shareholder returns,” he said. “However, as management has promised, these investments will not prevent the group from increasing its dividend by at least 10 percent over the year and they will enable it to position itself on the very fast-growing VSAT segment. This, combined with the likely launch of the LightSquared project in the United States in the fourth quarter of 2010, offers major diversification opportunities for the group and re-rating potential which we believe has been insufficiently priced in.”