Eutelsat’s 2020 Performance Grabs Analysts’ Attention

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Industry analysts from Berenberg Bank and Jefferies put European satellite operator Eutelsat under the microscope this week, issuing reports that largely praised the company for its recent acquisition of BigBlu Broadband, and its efforts to generate strong cash-flow.

Sarah Simon, a satellite equity analyst at Berenberg Bank, said she was “impressed” by Eutelsat’s cash-flow generation and, in her latest report, maintained a ‘buy’ rating on Eutelsat stock. While admitting that she has previously wavered on whether a ‘buy’ rating was accurate for Eutelsat, she wrote in the report that, “[Eutelsat’s] free cash flow generation continues to surprise us positively. What we had underappreciated, however, is that deep value is not enough if it is combined with any perceived lack of visibility. It is this latter point, however, that we believe is improving – as the company would have hit the guidance it gave at the beginning of the year would it not have been for the small COVID-19-related downgrade towards the end of the period.”

Berenberg anticipates that shareholders will start to reward Eutelsat for this increased visibility.

Giles Thorne, a satellite equity analyst at Jefferies also put out a recent research report on Eutelsat, which focused on the value of the operator’s recent acquisition of Bigblu Broadband’s BBB Europe business. Announced last week alongside its full-year 2019-2020 fiscal results, Eutelsat acquired valuable assets from one of the largest distributors of satellite broadband packages in Europe. Bigblu Broadband has developed a platform for satellite broadband, relying on a network of installers and resellers. The activities to be acquired by Eutelsat (BBB Europe) currently count around 50,000 subscribers across an expanding pan-European footprint which includes operations in the UK, Ireland, France, Germany, Italy, Spain, Portugal, Poland, Hungary and Greece.

“There’s no doubt some logic in it given selling communications ultimately always requires some kind of CPE subsidy (among other challenges),” Thorne wrote in his latest report. “An obvious benefit to this deal is that Eutelsat has now decidedly stolen Viasat’s once-upon-a-time ‘White Knight’ status for hitting the ground in Europe. The direction of travel had been set with the Preferred Partner (PPP) – and now Bigblu Broadband, short of a counter-bid we don’t think Viasat can drum up, has gone. The building blocks (KONNECT launch, Orange deal, DRC deal, Bigblu Broadband acquisition) for Eutelsat to prove the market wrong on fixed broadband (and indeed, group) growth.”

The Bigblu Broadband agreement coincides with the entry into service of EUTELSAT KONNECT, due to start gradually from fall 2020 with operation at full capacity expected from early 2021, bringing capacity in high-demand areas, improved end-user experience and unparalleled economics and flexibility. Simon said in the report that deal “makes sense” for Eutelsat. “The company has acquired immediate access to a scalable direct distribution channel for its new satellite broadband products with a proven track record across Europe. This can only help speed up the roll-out of its upcoming products, improving the returns on the new satellites, in our view,” Simon added.

However, while the deal for Bigblu Broadband understandably garners headlines, the company’s performance in video is perhaps event more impressive. Simon calls its performance “robust.” She adds, “Eutelsat’s core broadcast vertical, which represents more than 60 percent of operating revenues, remained robust. On a constant FX basis, the company has now reported core broadcast revenues of 192 -198 million euros ($226 – 234 million) for the past 12 quarters in a row. This resilience is unique within the satellite broadcast sector and is a result of Eutelsat’s superior application and geographic exposure versus peers. The strength of broadcast is the key reason why Eutelsat has achieved more than 400 million ($471 million) of free cash flow in each of the past four years, and its predictability is very much underappreciated, in our view. While we prudently forecast a leg down on the back of the upcoming large Sky Italia renewal, management commentary gave us increased optimism as to the outcome of these negotiations.”

Thorne also wrote about the importance of this potential Sky Italia deal for Eutelsat. “It’s welcome to hear that the Sky Italia renewal is close to completion – management were suitably tight-lipped on the details other than to insist, once again, that things are going very well. We wait with eager anticipation, the result,” said Throne.


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