The fallout from Eutelsat’s disappointing Q3 numbers, released May 14th, continue to reverberate. Indeed, while the results themselves were simply flat, one analyst now says they were “struggling to pick out any positive trends with any of [Eutelsat’s] main operating segments”.

The equity analysts at Berenberg Bank add that the market’s focus on Eutelsat’s “Other” revenue stream is a major worry: “The reliance on an exceptional level of ‘Other’ revenues in Q4 to offset this weakness and meet the bottom end of the guidance range suggests trading momentum is worse than we had anticipated.”

The bank implies that normally the “Other” category in the revenue column is like so much small change. “It is always the bridesmaid and never the bride,” says the bank’s report.  “However, the magnitude of the potential Q4 swing in this line, and it being the difference between an outcome of -2 per cent and -3.5 per cent growth for the year, it fully deserves to be in the limelight. At the beginning of the year, Eutelsat effectively guided to €25 million of ‘Other’ revenues, a €30 million reduction compared to FY17, or a run rate of c€6 million a quarter. Thus, the zero revenues in Q3 came as a big surprise and explained over half the miss versus our expectations. What is more of a surprise, however, is not just the fact that Eutelsat believes it could potentially get this €6 million back in Q4, rather that there is enough in the pipeline which means the Q4 number could come in at over €20 million. This means we would swing from a disappointing ‘Other’ revenue performance in FY18 to a material outperformance. With the outlook now suggesting Eutelsat needs almost €40 million of ‘Other’ revenues in 2018 to meet the bottom-end of the guidance range, it implies consensus was far too optimistic on the contribution to the top-line momentum from the core, more important, operating segments.”

Berenberg gives a target share price for Eutelsat of €18, which it says allows for a 10 per cent upside to current levels. “With numerous downgrades over the last few years, we expect, however, the multiple will stay contracted until the company starts delivering growth and even then it could take some time before consensus fully reflects a solid medium-term growth story. The 7.7 per cent dividend yield pays current investors to be patient and given the dividend is covered we believe this is as safe a dividend as one can expect in the satellite subsector.”

The market on May 17th must have thought that Eutelsat’s falling share price was an opportunity to buy and sent its stock up 1.5 per cent (€0.23c) to €15.88.

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