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

After slumping 42% last year, what's next for Scottish Mortgage?
Investment trusts

After slumping 42% last year, what's next for Scottish Mortgage?

After a spectacular couple of decades, the Scottish Mortgage Investment Trust fell by 42% last year. We take a look at the trust's performance and dis…
3 Feb 2023
The top funds to invest in
Funds

The top funds to invest in

As market volatility and recessionary fears continue, here are the most popular funds, stocks and trusts investors are putting their money into accord…
2 Feb 2023
The ten highest dividend yields in the FTSE 100
Income investing

The ten highest dividend yields in the FTSE 100

Rupert Hargreaves takes a look at the companies with the highest dividend yields in the UK’s blue-chip index
23 Jan 2023
The top ten dividend stocks in the FTSE 250
Share tips

The top ten dividend stocks in the FTSE 250

The average FTSE 250 dividend yield is around 4%, but many stocks yield much more. Rupert Hargreaves picks the best FTSE 250 stocks for income investo…
17 Jan 2023

Most Popular

When will interest rates go up?
UK Economy

When will interest rates go up?

Interest rates are now at 4%, and they could rise further in the months ahead.
3 Feb 2023
NS&I brings back one-year fixed bonds with highest rates since 2010
Personal finance

NS&I brings back one-year fixed bonds with highest rates since 2010

NS&I’s one-year fixed bonds are back on sale after being pulled off the market in 2019 - but is the rate any good?
1 Feb 2023
Covid-19 vaccines helped these stocks take off, but what’s next for these companies?
Investments

Covid-19 vaccines helped these stocks take off, but what’s next for these companies?

Dominic Frisby explores how the top vaccine stocks are doing as booster take-up remains at a low
2 Feb 2023