New Skies Satellites [NYSE: NSK] saw a slight increase in revenues in the first quarter, compared to the same period last year. Its revenues increased $0.2 million to $52 million in the quarter. More positively, its revenues showed a 2.3 per cent increase from the fourth quarter, indicating strong sequential performance. The company’s earnings before interest, taxes, depreciation and amortisation (EBITDA) increased in the quarter to $29 million, a 2 per cent increase compared to last year. In addition, the company’s EBITDA showed 4.1 per cent increased compared to the fourth quarter of 2002.

Analysts greeted the results positively. Robert Peck, a satellite equity analyst at Bear Stearns, said in a research note: “New Skies reported revenues of $52 million, coming in slightly higher than our $50 million estimate. The slight outperformance in revenues was driven by higher utilisation rates across the company’s fleet, which reached 70 per cent, from 67 per cent (excluding capacity from NSS6 and NSS7). We were encouraged with the company’s top-line growth given the continued difficult global telecoms markets.”

New Skies Satellites CEO Dan Goldberg said that his company’s guidance would remain the same for all of 2003. The operator is targeting revenues of between $212 million and $222 million. If New Skies were to achieve this, it could potentially hit double-digit growth in 2003, which would be an achievement even with new satellite capacity available. The operator signed some key contracts in the quarter with Brazil’s Adventist Television Network and BT Broadcast Services, among others.

In fact, things seem to be picking up for New Skies in Latin America. It announced a deal on May 2 with StarOne, a satellite services provider in Latin America, who is going to increase the satellite capacity it leases from New Skies by 50 per cent. The new capacity will enable StarOne to support its growing consumer and corporate broadband Internet access services, mainly in Brazil. New Skies has also announced a deal with Kuwait Messaging Services/ FalconStream, a Kuwaiti IT firm that provides Internet connectivity services via satellite. This is a long-term multi-transponder, multi-satellite agreement to offer high-speed Internet access services to more than 2,000 customer sites across the Middle East, Indian subcontinent and Africa.

The operator has also successfully executed its share buy back programme, acquiring approximately 12 million shares, or 92 per cent of the total authorised buy-back programme. Further buy backs could be in the cards. Peck said: “We believe additional buy backs are a positive, as it sends a message to the marketplace that management believes its stock is undervalued and instils investors with confidence that management is positive with respect to its business going forward.”

The company continues to have one of the strongest balance sheets in the sector. It achieved positive free cash flow in the first quarter.

In a research note, Tom Watts, a satellite equity analyst at SG Cowen, said: “With $3.6 million in cash and $275 million available under its $300 million facility, the company is well funded to meet its capital expenditure requirement of about $65-85 million. New Skies also has the funds necessary to complete the buyback programme, which at current levels, could be about $5 million. We expect the company to draw down another $10 million on its credit facilities by the end of the year, bring the year end balance to $35 million.”

Peck also praised the financial strength of the company. He added: “We remain encouraged by the company’s balance sheet, particular as investors try to avoid companies that are highly levered.”

Its strong balance sheet makes the operator an attractive acquisition target. Watts thinks ultimately PanAmSat [NYSE: SPOT] could take a look at New Skies. “Given PanAmSat’s financial flexibility, it could certainly proceed with any of the opportunities being shopped currently, ranging from swapping capacity with Optus in Australia, to acquiring a minority interest in Telesat Canada, to acquiring all of New Skies.”

–Mark Holmes

(Thomas Watts, SG Cowen, e-mail: Thomas.WATTS@sgcowen.com; Robert Peck, Bear Stearns, e-mail: rpeck@bear.com; Jeff Bothwell, New Skies Satellites, e-mail: jbothwell@newskies.com)