Eutelsat at a 'higher orbit'

Eutelsat’s results, which we reported on yesterday, have now been digested and chewed over by the market analysts. Morgan Stanley, in its note, gives the company high praise, saying the numbers have taken Eutelsat to “a higher orbit”. Indeed, while praising the numbers, the bank’s report hints that it is anticipating growth beyond the current formal guidance.

“Eutelsat reported stronger than expected revenues, with 7.9% revenue growth vs our expectation of 6%,” says Morgan Stanley. “Guidance was raised, as expected, although not by as much as we had thought – the new target is ‘more than €910 million’ for 2008/9. Our new estimates are well ahead of this guidance – we forecast €934 million.”

The bank says that it believes the current guidance to the market is conservative. Rapid TV News understands that Eutelsat’s cautious optimism is well founded on experience, and the market well understands the maxim that it is better to over-deliver on guidance than to over-promise and then disappoint. Nevertheless, the bank adds: “We also believe that the EBITDA margin guidance is low. Maintained at ‘more than 78%’ despite nearly 81% in H1, we believe this will be a target that the company materially exceeds in FY 2008/9. Our own forecasts look for an EBITDA margin this year of 79.6%.”

Morgan Stanley believes Eutelsat’s core investment thesis remains robust: “With strong organic growth, strong operating leverage (despite having already very high margins), and excellent visibility over the business, we continue to believe that Eutelsat offers investors a relatively distinctive combination of low risk and attractive growth.”

The bottom line, at least for the bank, is an impressive price rise to €22.6, and for investors to remain ‘Overweight’ in terms of their holdings in Eutelsat. “On the back of our upwardly revised estimates, we are increasing our price target from €21.8 to €22.6. This reflects an average EBITDA increase of 4-5%. We remain Overweight [in Eutelsat] along with other defensive media names,” says the Morgan Stanley report.

Eutelsat is partnering with SES New Skies for the twin-launch on February 12 of Hotbird 10 along with SES’ NSS9 on an Ariane rocket. Meanwhile, W2A will launch on March 28, bringing much needed capacity to 10E as well as Europe’s first S-band payload.