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H1 24 revenues and EBITDA broadly in line with expectations Eutelsat reported EUR573m of revenues in H1 24 driving EUR366m of EBITDA. Video was down 8% and came at the higher end of expectations. Government and Fixed Connectivity were slightly higher while Mobility was slightly lower. Excluding OneWeb, Eutelsat delivered on guidance of a return to positive growth thanks to the entry into service of 10B and Konnect VHTS. OneWeb commercial success remains solid despite delays in ground network roll out OneWeb backlog grew 23% over the previous quarter to EUR700m (excl. intra company agreements) with commercial successes with Telstra in Australia and Airbus amongst others. This came despite the recently announced delays in the ground network deployment. OneWeb is delivering a solid customer experience with latency of 70ms and download speeds of c200 Mbps. 30 of the 43 required gateways have been rolled out. Management expects to be close to 40 by July. Gen 2 capex reduction Management has reduced its capex guidance from a 5y average of EUR725-875m to EUR600-700m. We estimate this implies a c. EUR700-800m in Gen 2 total capex envelope and c1x reduction in Net debt to EBITDA. We believe it reflects a more progressive approach to OneWeb Gen 1 upgrade. As discussed here we believe that protecting the balance sheet is positive for the equity value of the group. We note management comment of incremental cost synergies as another positive. TP revised up from EUR3 to EUR3.5 Eutelsat is making good progress and reducing balance sheet risk but is not out of the woods yet. While we remain cautious on the shares in the context of management withdrawing its FY25 guidance as well as refinancing and investment requirements (hence our UPF rating), we see some positive short-term catalysts ahead (IRIS2, improving H2 revenue trends in Video and Connectivity) and increase our TP to EUR3.5 on largely unchanged revenue and EBITDA forecasts.
Eutelsat Communications Eutelsat Communications SA
Eutelsat warns on OneWeb''s financial trajectory This morning, Eutelsat issued a surprise trading update indicating that OneWeb''s near term financials were below management expectations. Excluding OneWeb, management has confirmed that Eutelsat would return to revenue growth in FY23/24 thanks to new capacity. However, OneWeb revenues are running behind schedule relative to its original roadmap. Its order backlog has progressed by some 15% from ''close to USD1bn'' at the end of Q1 24 to over USD1.1bn now. FY23/24 EBITDA cut by 15% at the mid point Management is now guiding for FY23/24 revenues of EUR1.25-1.3bn (at USDEUR of 1.00) vs. EUR1.32-1.42bn previously and group EBITDA of EUR650-680m (vs. EUR725-825m) previously. It has suspended its FY24/25 financial outlook but indicated that it remains confident on the long-term growth trajectory of the asset. We have cut our EBITDA FY23/24 and FY24/25 by 7% and 19%. Delays in ground network deployment OneWeb''s revenue issues are driven by a combination of logistical issues and regulatory delays. Due to the lack of inter satellite links OneWeb needs a large ground network of gateways. 90% of the network has been deployed but several Maritime contracts require close to 100% deployment to be operational. Market access authorisations have been obtained at a slower pace than anticipated. India, Thailand, Saudi Arabia, Turkey are large markets where market access is pending or has been provided later than expected (India in November 2023). OneWeb revenue mix has a higher proportion of low margin terminal sales (vs. high margin service sales). Preference for SES (+) over ETL (-) maintained OneWeb issues are specific and provide no read-across to SES mPower. Given its legacy O3B constellation, SES has market access rights. Given its altitude, mPower has a much less complex ground network architecture. As discussed here, we continue to prefer SES (+) over ETL (-).
Eutelsat Group posted Q1 24 revenue figures 2% above the consensus, driven largely by its Mobile Connectivity division. Following the approval of the merger with OneWeb, the company has also provided new targets for both the short- as well as the medium-term.
Eutelsat published full year results in-line with the guidance. As expected, the Video segment delivered the weakest performance. However, a positive surprise came from the one-off contract in Government Services with the German space agency, which also led to the company’s out performance compared to the consensus. Additionally, Eutelsat also announced that the OneWeb transaction will be completed by next month, which we see as a key milestone (almost) for the company.
Eutelsat H1 23 results lead to confirmation of guidance Eutelsat reported H1 revenues in line with consensus. Government Services was weaker due to the poor renewal campaigns of 2022. But Mobility came in much stronger, driven by growth in Maritime. Management has confirmed all elements of its outlook for FY23 and continues to expect a return to growth in FY24. We note that it guided for worsening top-line trends in Video, Government and Fixed Broadband in H2 23, all in the framework of the reaffirmed guidance. IRIS2 project on track The EU Parliament recently approved funding for the IRIS2 constellation of European satellites, a project aimed at reinforcing the competitive appeal of European space assets in the context of the new ongoing space race. Eutelsat expects bid tenders to be issued in March. It is currently in discussion with players in the space industry to form a bidding consortium. Our central scenario is for SES and Eutelsat to jointly work on and benefit from this project. OneWeb GEN2 on track Management expects OneWeb GEN1 to be fully operational (vs. 85% now) in January 2024. It reported good growth in OneWeb''s order backlog (from USD0.6bn in October to USD0.8bn at the end of December). The EUR4bn capex envelope for GEN2 has been confirmed with initial spending in FY24 and full ramp-up in later years for an entry into service in 2027 or 2028. Management continues to expect closing of the OneWeb merger in calendar Q2 or Q3 2023. Forecasts largely unchanged Our revenues forecasts are largely unchanged. We have trimmed EBITDA margins to reflect investments in Eutelsat''s commercial offering in Connectivity (i.e., Eutelsat Advance). EPS is revised down to reflect the impact of the scrip dividend. FCF guidance is maintained.
Eutelsat held a Capital Markets Day to discuss the OneWeb transaction Eutelsat and OneWeb management shared the stage to present the merger announced a few weeks ago. The company provided detailed financial guidance for OneWeb stand-alone revenues as well as for the combined entity. Management expects EUR150m of annual revenue synergies by year 4, EUR80m of pretax annual cost savings by year 5 mostly through cost avoidance as well as EUR80m of annual capex synergies from year 1. Gen 2 to cost around EUR4bn and offer c5 Tbps of capacity Management guided for a total cost of around EUR4bn for OneWeb generation 2 systems. This next generation network will have more advanced technology using optical satellite interlinks. It will deliver around 5x more capacity (5-5.5Tbps) of global capacity than Generation 1 with a satellite design life of 10 years and a lower cost per bit. Management claims OneWeb owns attractive priority rights Satellite spectrum rights are delivered on a first come, first served basis. Management pointed that OneWeb ranks first for LEO Ku band rights and ranks high in Ka priority filings. Competitors will incur greater costs as they need to coordinate to avoid interference. As a result, the number of LEO systems likely to operate will be limited. Eutelsat will become the only vendor with a multi-orbit LEO/GEO offering. Deal timeline Management expects to obtain all regulatory clearances by March 2023 and plans to have an EGM in calendar Q2 23 for a deal seen completing in H2. ETL Q1 results in line with consensus Eutelsat reported 4.3% orgrev decline in Q1 with revenues of EUR291m in line with consensus.
Eutelsat provided its sales figure for its first quarter which were in line with consensus. Business is proceeding as usual, with a strong decline in Broadcast while its niche segments Fixed Broadband and Mobile Connectivity are performing strongly. The group reiterated its short-, medium- and long-term guidance following the integration of OneWeb. The only negative aspect is that dividend payments will only resume after 3 years minimum.
º Q1 2023 sales broadly in line with expectations º Guidance reiterated º Strategic update
Eutelsat has posted FY21-22 results that stood broadly in line with consensus on all metrics. However, investors have looked past the reported figures and straight into the expected cash consequence of the OneWeb acquisition. Though the acquisition makes operational sense, Eutelsat will sacrifice years of profitability before seeing a return on its investment. It will also sacrifice its minority shareholders’ returns, as dividends have disappeared with no official return date. Eutelsat has become a high-risk growth bet.
Eutelsat has announced that it could merge with OneWeb to become more competitive with the American major LEO constellations such as Starlink or Kluiper. Despite the potentially interesting operational synergies, the short-term financial impact on the stock involves a material dilution of both EPS and DPS. Overall, we believe governments are realising the strategic geopolitical importance of LEO constellations and that OneWeb will become key for the EU. An interesting long-term bet.
Eutelsat slightly beat consensus with its reported Q3 sales. The Broadcast segments’ structural decline was partly offset by strong momentum in Fixed Broadband and Mobile. It has also signed a partnership with OneWeb to combine their fleets to propose an adaptable offer. However, the headwinds from Russia are worrying and could impact the coming quarters for Eutelsat, which has reiterated its FY22 guidance.
Despite sales in line with consensus, the outlook for Eutelsat has been disappointing. The return to growth, that investors have been patiently waiting for, has now been pushed one year back and is expected by FY23-24.
Eutelsat’s FY21 is disappointing. Sales came in line with the consensus (at the higher end of guidance), but EBIT came in 14% below, which represents a 30% decline yoy. Eutelsat is trying to reassure its investors through an increased dividend plan and a higher cash guidance.
Q3 21 showed zero surprises. Revenues were in line with expectations with growth reported in Fixed Broadband, and the rest is decreasing yoy. Eutelsat acquired part of the OneWeb project in April.
Eutelsat has managed to release first-half figures for FY20-21 that were better than anticipated, on the back of a better performance overall. This allowed the company to upgrade marginally its FY guidance.
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