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Government and Africa Market Challenges Loom Large for Intelsat

By Mark Holmes | February 21, 2014
Intelsat Headquarters

Intelsat Headquarters. Photo: Intelsat

[Via Satellite 2-21-2014] Intelsat generated revenues of more than $2.6 billion in 2013, but an overall loss of $255 million. These were two of the highlights of its fourth quarter results issued Feb. 20. Encouragingly for the operator, it generated a net profit of in excess of $72 million during this period. According to Intelsat’s CEO David McGlade, the company saw “saw solid bookings and renewals” in its media and network services businesses.

Analysts, however, were initially left disappointed at Intelsat’s numbers, as well as its forecasts for 2014, but felt the operator had the capability to bounce back.

“While the guidance is a disappointment, we think our long-term model is largely intact,” Andrew Spinola, a satellite equity analyst at Wells Fargo said in a research note. “With the government estimates reset, we believe [Wall] Street will start to look at the growth that reaccelerates in the back half of 2014 and continues through 2016 as satellite launches and capacity growth resumes. We continue to believe that the market is excessively discounting the stock’s multiple due to near-term weakness, especially with the slowdown in government coupled with the lack of new capacity, and believe the stock’s multiple on 2015E Free Cash Flow (FCF) will expand going forward.”

Chris Quilty, senior vice president, Raymond James, said in a research note that the results were “roughly in line with expectations.” Both Spinola and Quilty highlighted the difficulties of the government market for Intelsat.

“Government revenue declined 14 percent to $116 million, primarily reflecting a continued decline in [lower margin] off-network services,” Quilty said in his research note. “The segment is still struggling to offset sequestration and ongoing budget uncertainty that has delayed RFP activity and contract awards. Government spending uncertainty remains our top Intelsat concern, and we do not expect significantly improved visibility until after the 2014 election cycle.”

Commenting on the government market, McGlade added that contract losses to other operators is not something Intelsat blames for any financial setbacks. “We don’t believe we’re losing contracts to competitors,” he said. “It’s been a combination of some price reductions, some capacity reductions and then the majority has really been around cancellations of contracts in the fourth quarter. So that is certainly the driver of what’s happening.”

The situation in Africa will also remain tough for Intelsat for two main reasons, according to Quilty.

“Intelsat is continuing to face a challenging environment in its African markets due to (1) ongoing fiber encroachment and (2) increased pricing competition from new satellite operators,” he said. “We expect African headwinds to persist in the next 12 to 18 months as Intelsat sheds questionable customers and adjusts to the changing African market.”

In an interview coming up for SATELLITE 2014, McGlade told Via Satellite that he is still convinced about the growth opportunities for the operator in Africa.

“We believe that there are solid long-term growth opportunities in Africa. As African nations seek to achieve improvements in content delivery and connectivity for both business and personal use, satellite will continue to be viewed as an integral solution,” he said. “In addition, the developing media market bodes well for future growth as a larger consumer class develops. We believe the dynamic African telecoms landscape will continue to generate excitement and inspire further innovation across our industry over the long term.”