Investment bank BNP Paribas, in a major study of Europe’s media and media-related activity, has also looked at the wider satellite sector. Analyst Sami Kassab said that satellite operators’ shares had a mixed performance in 2024.
That comment might be seen as an understatement
“Incumbent satellite operators (Viasat, Eutelsat, SES, Iridium) have continued to see share price attrition in 2024 as investors doubted that they will be able to maintain let alone drive FCF in the age of mega constellations. New entrants such as AST Space Mobile or Planet Labs have fared much better. Press reports suggest Space X valuation doubled between December 2023 and December 2024,” Kassab suggested. “We note that while investors believe Eutelsat/SES will suffer from competitive pressure in the age of mega-constellations, they have taken a much less sanguine and more favorable view on AST, a seven year old startup in a head-on competition with Starlink in the Direct-to-Device segment.”
After almost a decade of uninterrupted EBITDA decline, the bank expects SES to return to sustainable growth from 2025 onwards as it benefits from the entry into service of its next generation mPower satellite system. The bank also assumes a sustainable return to EBITDA growth for Eutelsat from the second half of calendar year 2025 (FY26) driven by the commercial progress at OneWeb.
Kassab asked, “What impact will the new US administration have on European operators?,” and added: “Another likely key debate is on the impact of the new US administration is likely to have on European satellite operators. IRIS² is a political initiative aimed at ensuring European government communications in space is operated on European satellites. Will the Trump-administration reciprocate and push the US DoD to move away from European spacecrafts? Given the long history of the US DoD using European satellite systems, we think it is unlikely.
Kassab continued, “What impact will Elon Musk as Head of the Department of Government Efficiency have on US space regulation? We believe his role in the current administration increases the chances that the FCC changes regulation on Power Flux Density limits. Changes could result in up to an 8x increase in Starlink capacity and has been a key demand of SpaceX last year. This would mean even more supply of capacity on the US market and in the medium term possibly in other jurisdictions too. This could push prices further down.”
The report added, “Satellite operators have historically operated assets with solid FCF generation and limited volatility. This enabled the industry to sustain high levels of debt (c3x net debt to EBITDA or more). But the industry has changed. Contract length in video is shortening. Structural concerns are high. Competitive pressure is intense. Revenue pressure and high leverage have depressed equity valuations.”
Kassab summarized, “We believe balance sheet risk is now the main driver of share prices, similar to what we witnessed with other structurally challenged highly leveraged industries like yellow pages 10-15 years ago. Management actions that protect the balance sheet (ie Eutelsat disposal of a majority stake in its ground infrastructure) are likely to have a more positive impact on equity valuation than actions that put additional leverage on balance sheets. We note that SES shares are down 46 per cent despite positive EPS consensus revisions. We believe this reflects the stretching of the balance sheet in the context of the Intelsat acquisition.”