Eutelsat: underperforming flying object | Financial Times

It is fortunate that European satellite operators’ hardware is less susceptible to gravity than their share prices. At least France’s Eutelsat is temporarily moving in the right direction. Shares are up about 8 per cent since the group published first-half results last week.

The technological glitz of marshalling fleets of orbiting satellites has worn off for investors. A dependence on satellite broadcasting revenues has become a weakness as streaming proliferates. Fat yields reflect that.

Consumers are switching to on-demand entertainment from the likes of Netflix and Amazon. That explains why share prices for Eutelsat and Luxembourg-based rival SES have fallen some 70 per cent over the past five years.

The pop in Eutelsat’s shares reflected a slower than expected decline in revenues from its core business of 2 per cent on a constant currency basis.

Satellites have a unique advantage in the provision of mobile broadband for aircraft and boats. But revenues at Eutelsat’s mobile division reflected the recent collapse in air travel, down 14 per cent on the previous year.

The outlook is better for satellite groups in laying on broadband services to homes and businesses excluded from land-based networks. Eutelsat offers capacity wholesale to national telecoms companies and directly to consumers as well.

But staking your future on satellite broadband remains risky. In addition to the threat from existing land-based services, low-earth orbit satellite providers such as Elon Musk’s Starlink, Amazon and UK-backed OneWeb are gaining traction. 

Those risks are suitably priced into Eutelsat shares. These trade below eight times two-year forward earnings — half the long term average. The corollary of this is a yield close to 10 per cent. This is not be sniffed at, especially as free cash flows this year are expected to cover the previous payout by half again.

Public markets are bad at valuing businesses where cash flows may be dwindling. Alternative asset managers are sometimes better at recognising mispricings. Unfortunately for minority investors in Eutelsat, the likely disapproval of the French state, which has a one-fifth shareholding, would be enough to deflect the interests of private equity buyers.

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