SES/Intelsat - Incremental
All,
Please find our updated analysis of SES here.
News were only incremental yesterday as management only put finer points on some of the information it had already provided earlier in the year. The most notable difference was the tone, Someone must have told management that the Q4 sounded (deservedly) negative. But all is well now, because every European government wants to contract satellite capacity, says the bond price. Results were slightly poorer than we had modelled, but not by much. This call was all about 2025 guidance.
Investment Considerations:
- We are not taking a position in either direction at present. Incremental network revenue should at best offset the loss in Video this year, and the investor mood is buoyant on European Government demand, which may still take time to materialise. The shorter-term bonds seem about accurately priced and the return is too low for us. In the future we may be looking at the hybrids and the long end of the bonds from a short perspective, but these instruments will be a slow-moving grind downwards and they carry significant duration.
- The nearest catalyst would either be a government announcement to stay with Starlink, or an acceleration in Video cancellations beyond what was already flagged.
2025 Stand-Alone Guidance:
- Media decline and outlook: Mid single digit declines in the medium term. However, in 2025 there will be another 5% decline due to the Oi bankruptcy. Also, SD TV channels are being switched off (decision was made years ago and the headwind is concentrated in 2025). Decline should improve again to mid-single-digits from 2026 onwards. The Oi loss will likely not be mitigated within the media business.
- Shipments of lower-margin equipment in the next two quarters to weigh on GM.
- Expect some extra costs during the next two quarters from the launch of satellites 7 and 8. Satellites 9-11 to launch in the summer. Also, CapEx this year will be front-loaded as a result.
- EBITDA to be broadly stable this year.
- Reiterated full-year CapEx guidance of €425 - 475m for the year 2025. CapEx outlook for 26/27 to be €325m excluding IRIS2. IRIS2 CapEx is backloaded and should translate into a total of €400m p.a. from 2027 to 2030.
- D&A is increasing due to the increasing number of satellites in orbit.
- C-Band reimbursements: SES shareholders will be entitled to 57% of the first and 100% of the benefits of the second 100 MHz clearing of the C-Band spectrum. Clearing the upper C-Band would require more work and coordination with clients. This is the CEO talking up the valuation in case the FCC is listening.
- Working Capital and Cash: Have received €295m of cash towards IRIS2. Restricted Cash. Also, incremental C-Band reimbursement. SES have received $70m in cash in Q125. and should receive another $24m in Q225. There will also be incremental insurance settlements of $58m to be collected in Q2.
- Liabilities: Looking to redeem 2bn of the 6.5% Intelsat Bonds on or before the closing of the transaction and conducting open market purchases ahead of time.
Incremental Capacity:
- The satellite launches commencing this month should add an additional 30% capacity to the network, which has not yet been sold. Three further MEO satellites are to be launched in the summer and should add further significant capacity. Then two more are planned for the end of 2026.
- While this additional capacity has not yet been sold, we think it is in the projections of the company and required as capacity is likely becoming cheaper. We are not yet raising our projections as a result and at least for this year, not even SES are visibly factoring in incremental revenues due to more capacity.
F-4 Filing:
- SES has filed a report with the SEC, registering the contingent value rigths accruing to Intelsat shareholders as securities. Included in the filing are pro-forma consolidated financials for 2024. We have incorporated those financials into our pro-forma analysis and projections.
Intelsat Bonds,
- Management declared outright that it intends to purchase Intelsat bonds in the open market and redeem the Intelsat bonds on or before the transaction closes, which is now seen as an end-of-2025 event.
Here to discuss this name with you,
Wolfgang
E: wfelix@sarria.co.uk
T: +44 203 744 7003
www.sarria.co.uk