Eutelsat headquarters. Photo: Eutelsat

[Via Satellite 10-30-13] Eutelsat reported a small increase in overall revenues in the three months ending Sept. 30, compared to the same period last year. This was one of the highlights of its first quarter results, issued Oct. 29. The operator gained revenues of €323.5 million ($445.48 million) in the quarter, an increase of around €9 million ($12.39 million) compared to the same stage the prior year. Most revenues segments such as video applications, multi-usage and value-added services saw an increase in revenues. Data services saw a near 4 percent decrease compared to the same stage last year.

While the revenue numbers were in line with expectations, the mix was not, according to Sarah Simon, a satellite equity analyst at Berenberg, in a research report. “The mix was slightly less favorable, with a lower contribution from video and data services and more from multiusage, other and non-recurring estimates. Management reiterated its guidance for more than 2.5 percent underlying revenue growth in FY 2014, although noted that this does not reflect the loss of revenues relating to the dispute with SES, which could take c1.5 percent off the guidance, on our estimates,” she said.

Video applications revenues reached €217.1 million ($298.96 million) in the quarter, up less than €1 million ($1.38 million) compared to the same stage last year. In terms of Eutelsat’s performance in the video space, its key revenue driver, Simon said, “Video revenues were broadly flat year-on-year and slightly down sequentially. This reflects the lack of premium video capacity, a point that we have highlighted in the past as being a key reason for Eutelsat having limited near-term revenue growth. Moreover, what growth there was in terms of channel numbers came toward the end of the period and did not therefore fully contribute. Eutelsat saw a 7 percent year-on-year increase in the number of channels, of which 15.8 percent was an increase in HD channels.”

Eutelsat is at interesting inflexion point in its history. The company, which has been best known as an operator in Europe, Middle East and Africa, is looking to broaden its horizons and become more of a player in Latin America and Asia. Its acquisition of Satmex at $1.1 billion, announced earlier this year, is a key deal for the company. One of the other highlights for the company is making good its investment in Ka-Sat, one of the biggest satellites in terms of capacity ever launched. Simon says that Berenberg estimates that Ka-Sat is now c25 percent filled, and the number of broadband terminals increased from 91k at June 2013 to 108k at September 2013. “This reflects the continued ramp-up in the number of sales people and installers,” Simon added.

Eric Beaudet, a satellite equity analyst at Natixis Securities, said of Ka-Sat’s performance in a research note, “[There were] 17,000 new subscribers [on Ka-Sat] added over the quarter, bringing the total to 108,000, reflecting an acceleration in net adds with Eutelsat now serving new countries [Turkey, Russia] as well as France and Spain, which are currently its biggest markets for this division.”

The operator has consistently been one of the strong performers in the satellite sector over recent years, with particularly strong growth in the video space. In terms of its guidance going forward, Simon said. Berenberg prefers SES at this stage. “Guidance has been maintained for now, but risks remain. Management reiterated its guidance of over 2.5 percent underlying growth in fiscal 2014, but this does not reflect the eventual outcome of its discussions with SES regarding the 28.5 degrees east dispute. We note that SES ‘holds any associated claims for damages and costs to be unfounded and completely without merit or basis,’ which suggests that it will not roll over easily. Our estimates for Eutelsat do not yet reflect the associated downgrade. While Eutelsat has de-rated substantially, we continue to prefer SES, which has lower leverage, much higher free cash flow yield, better dividend yield and superior near-term growth prospects in our view.”