A clear signal to sell on satellites

ViaSat satellite © ViaSat
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.