[Satellite News 02-08-10] Morgan Stanley expects SES to outperform in 2010, according to a research report issued Feb. 5
The report, “Stellar Choice,” highlights three potential growth trends for SES, with its December 2009 acquisition of the Protostar-2 satellite at the top of the list.
“While the there is potential to sell on the 10 S-band transponders, we see the potential to make a 30 percent investment return ration (IRR) over time. We assume utilization rates reach 85 percent by 2014 at 1.1 million euros ($1.5 million) per transponder. This yields EBITDA of 24 million euros ($33.2 million) (80 percent margin) against an interest cost of 7 million euros ($9.69 million). We like the deal as it is effectively a low-risk, already launched and functioning, substitute for capex at an unusually high IRR,” Edward Hill-Wood, a satellite equity analyst at Morgan Stanley, said in the report.
    The second SES growth opportunity, according to Hill-Wood, is the company’s O3b investment. “While we factor in a 54 million euros ($74.75 million) cash investment, we do not assume a return from a 30 percent investment in O3b. However, there is clear upside potential as over 600 million euros ($830.53 million) contract backlog has already been achieved. The aim is to provide low cost, reliable backbone for Internet delivery in developing markets via a network of eight satellites,” he said.
    The commercialization of NSS-12 after its late 2009 fourth quarter launch is the third positive mark for SES, said Hill-Wood. “We understand the commercialization program is developing well with full potential for 30 incremental transponders by end 2010 (3 percent total).”
    While Morgan Stanley is optimistic for SES’s prospects in 2010, Hill-Wood highlighted management issues that SES has to face and named ND SatCom as the key problem area. ND Satcom “has close to 110 million euros ($152.3 million) in revenue and 6 million euros ($8.31 million) in EBITDA. Having grown strongly (17 percent per annum) from 2000, its saw a decline and deferral of new orders in 2009, shedding 25 million euros ($34.6 million) revenues. While this has a minimal impact on EBITDA, it was largely responsible for the downgrade to group revenue guidance in the third quarter. While plenty of options remain available, including status quo, a shift to deconsolidation would be taken positively by investors in our view. It would lead to higher organic growth, higher EBITDA margins (76 percent in 2009 vs 70.5 percent reported) and lower volatility.”
    Hill-Wood also wrote that strong demand for HD, and ultimately 3-D HD, are also signs of a strong long-term SES market presence beyond 2010. “There is increasingly visible evidence that new technologies are being developed to support longer-term demand for satellite capacity. On particular, while the near-term impact is limited, we see scope for mass adoption of 3-D technologies to add incremental demand over the coming five to 10 years.”