Berenberg: SES shares should bounce back on strength of C-band and MEO satellites

Satellite operator SES’s share price is likely to bounce back after dropping about 15% on the news that CEO Steve Collar is leaving the company, according to analysts at Berenberg.

The analysts point to two major factors that should see SES’s stock recover and indicate that it is currently under-priced.

The first is the receipt of US$3 billion in proceeds from the clearing of C-band spectrum in the US, expected by the end of this year. The payment will incur a tax charge of 18-19% according to Berenberg, leaving net proceeds of around €2.3 billion, or 105% of the company’s current market capital following the share price drop.

SES is also on track to recover costs it incurred clearing the C-band spectrum, amounting to a further cash injection of US$600 million.

Berenberg said the C-band payments together, along with SES’s expected EBITDA for the current year of €1.01 billion to €1.05 billion, meant that SES is currently trading on less than four times EV/EBITDA – a very low proportion – with a dividend yield of 10.5%.

The second factor identified by Berenberg is the launch of commercial services by MEO constellation O3b mPOWER. Given a potential delay in the delivery of two satellits sechduled for launch in Q2, Berenberg says it is possible the commercial launch could be delayed until Q4 rather than Q3, but this should ultimately still help the company return to revenue and EBITDA growth.

Like other satellite companies, SES has been hit by the decline in its traditional broadcast business as video migrates to IP, and is relying on data opportunities facilitated in its case by MEO satellites, to help it recover.

Berenberg nevertheless noted that the timing of Collar’s departure “feels very odd” given the closeness of the O3b mPOWER commercial launch and the imminent arrival of C-band cash, as well as a potential future merger with rival Intelsat.

However, it said that SES’s statement on Collar’s resignation “is important in providing some comfort” in the shape of its reassurance that the MEO project and C-band receipts are both still on track.

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