Eric Beaudet, a satellite equity analyst at Natixis Securities said in a research note, “While the numbers were unsurprising, this publication should nonetheless provide reassurances on the group’s capacity to deliver robust growth (+6.5 percent this quarter)after the profit warning last spring. We are therefore maintaining our Buy rating onthe stock given: 1/ still-solid fundamentals in the sector, with an HDTV penetration rate of only 6.8 percent for the Eutelsat fleet; 2/ the fact that the group has a growth driver,Ka-Sat, which SES does not and which is starting to prove its worth (value addedservices up 44 percent this quarter) and 3/ a EV/EBITDA ratio of 8.3x, which is lower thanthe historical average (9.1x for 2009/12).”

   Despite a near 10 percent increase in revenues from video applications, Sarah Simon, a satellite equity analyst at Berenberg said this number had been weaker than expected. She said in a research note, “Eutelsat reported Q1 revenues that were in line with our expectations (314 million euros versus our 313 million euros, and a touch higher than consensus of 310 million euros). Video was a bit weaker than expected, and down sequentially, although it emerged that there was an (unquantified) one-off in Q4 2012 video revenues. Management confirmed that there is limited video capacity left to sell (there is availability at nine degrees East), and that this is constraining growth, as we had predicted in previous research.”

   However, there was some good news for the operator in other parts of its business. Simon added, “A positive surprise was data and value-added services, which were slightly stronger than we had anticipated. While data was down 7 percent year-on-year, value-added services, which includes Ka-Sat, were up 43.7 percent. Looked at sequentially, growth in Q1 2013 was 1.9 million euros ($2.47 million), versus 1.4 million euros ($1.82 million) in Q4 2012 – i.e. growth is accelerating in absolute terms. Both residential and B2B applications are making progress.”

 The big talking point involving Eutelsat right now is the spectrum disputes the operator finds itself involved in, and what potential impact these might have on the operator, if things don’t go its way here. The disputes concern the orbital positions of 28.5 degrees East and 25.5 degrees East.

   The first dispute is a very high profile one with fellow FSS giant, SES. Eutelsat recently announced that it had filed a request for arbitration against SES with the International Chamber of Commerce in Paris. Simon says, “The first (spectrum dispute) relates to frequencies currently utilized by Eutelsat under license from Deutsche Telekom, which may, or may not, have been re-allocated such that from 4 October 2013 they can be used by SES. Our view remains that it is impossible to guess who will emerge victorious.

   She continues, “A second dispute, relating to frequencies at 25.5 degrees East, could affect the company’s ability to monetize Eutelsat 25B. Arabsat, Iran and Eutelsat are in disagreement as to who holds the rights to frequencies at this slot. Again, the dispute has been rumbling for some time, but given plans to launch Eutelsat 25B in early 2013, the issue must be resolved soon.”

   In terms of how this could impact the operator, Simon says, “The risk-reward on Eutelsat is skewed regarding these disputes. Successful resolution means the status-quo and guidance is maintained (and possible upside from damages awards). However, should Eutelsat not succeed in winning its case, it faces downgrades, particularly in respect of 28.5 degrees East, which we believe could affect 2014 PBT by -5 percent.”

   Beaudet adds, “As regards the recent legal proceedings against SESwith the Paris Chamber of Commerce, management was reassuring, saying that: 1/ it does not expect SES to use its spectrum at 28.5 degrees East so long as the dispute is ongoing, and 2/ it does not expect to lose any revenue relating to its contract with MediaBroadcast, as some had feared. Eutelsat shifted a satellite, ETL 48B (now 28B), to this position in order to cater to Africa.”