A clear signal to sell on satellites

Satellite operator Inmarsat is plummeting back to earth. Investors should eject, says Alex Williams.

793-satellite-1200
Some black-sky thinking needed

Satellite operator Inmarsat is plummeting back to earth.Investors should eject, says Alex Williams.

Telecommunications group Inmarsat is sending a clear signal to investors, says Jillian Ambrose in The Daily Telegraph. "Sell." The FTSE 100 company owns a cluster of satellites, each as large as a double-decker bus, which it uses to sell internet access to customers in remote locations. Key customers include the shipping and oil sectors, both of which are in distress. Oil has tanked and a glut of ships has depressed freight rates, pushing shipping companies under and weighing on Inmarsat's sales.

Profits halved in the first quarter and revenue is due to fall 5% this year from $1.27bn. Its shares are down 28% this year. Inmarsat has also had problems on the launchpad. Its third generation of "Global Express" satellites is facing delays, while a Russian rocket carrying one of its satellites recently crashed, burning up over Siberia. A 25% fall in the firm's shares so far this year is not a buying opportunity, but a warning to "step back", says Ambrose.

The outlook's not that bad, says Caleb Henry in Satellite Today. Inmarsat's new generation of satellites may have been "un-launched", but its long-term trajectory is positive. The next launch is due later this year from California and once delays are overcome shareholders can expect "double-digit revenue growth" from 2018. Inmarsat's airline business is also booming, says Daniel Thomas in the Financial Times, as in-flight broadband becomes more common.

The firm has signed a contract with Deutsche Telekom to supply broadband on flights across Europe. The project is scheduled for testing in 2017 and "all of Europe's leading airlines" are showing interest in the service, according to Rupert Pearce, the chief executive.

Inmarsat's potential market is growing, but so too is the competition, says Barclays. For example, British Airways and Delta Air Lines are adding super-fast broadband to flights, allowing customers to stream films but they have chosen to use Gogo, a Chicago-based firm, which uses ground-to-air technology. And Virgin America uses ViaSat, one of Inmarsat's competitors.

It's clear that rivals are catching up, says Haitong Securities. It believes that Inmarsat will need to spend $500m a year on infrastructure to maintain its industry lead, which is more than most analysts are expecting. The stock has been a strong performer in recent years, but it's time to eject.

Recommended

DoorDash won't deliver for investors. Here's how to short it
Trading

DoorDash won't deliver for investors. Here's how to short it

American food-delivery app DoorDash can’t even make money in a pandemic. Matthew Partridge explains the best way to short it.
20 Jan 2021
The best investment trusts to buy for 2021
Investment trusts

The best investment trusts to buy for 2021

Sectors ranging from emerging markets to student accommodation look poised to do well this year, says David Stevenson, as he picks the best investment…
19 Jan 2021
Five online retail stocks to diversify your portfolio with
Share tips

Five online retail stocks to diversify your portfolio with

Professional investor Tancredi Cordero, founder and CEO of Kuros Associates, selects five of his favourite online retail stocks to buy now.
18 Jan 2021
Share tips of the week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
15 Jan 2021

Most Popular

Why we won’t see a house-price crash in 2021
House prices

Why we won’t see a house-price crash in 2021

Lockdown sent house prices berserk as cooped up home-workers fled for bigger properties in the country. And while they won’t rise quite as much this y…
18 Jan 2021
Prepare for the end of the epic bubble in US stocks
US stockmarkets

Prepare for the end of the epic bubble in US stocks

US stocks are as expensive as they’ve ever been. How can you prepare your portfolio for a bubble bursting?
18 Jan 2021
The best investment trusts to buy for 2021
Investment trusts

The best investment trusts to buy for 2021

Sectors ranging from emerging markets to student accommodation look poised to do well this year, says David Stevenson, as he picks the best investment…
19 Jan 2021