Eutelsat warning raises questions about Inmarsat's guidance, Berenberg says

A profit-warning from satellite-operator Eutelsat led analysts at Berenberg to question the explanations given by London-based Inmarsat to explain its own recently lowered near-term guidance.

Critically, Eutelsat cited pricing pressure and lack of growth in data and a much weaker-than-anticipated renewal rate of 65% with the US government.

Inmarsat was a 100% data outfit and Washington was its biggest customer, analysts Laura Jenssens, Sarah Simon and Robert Berg explained in a research note snet to clients.

Eutelsat referenced pricing pressure after large amounts of high-throughput satellites (HTS) launches and said its mobility business was "stable" according to the analysts.

"With [Inmarsat's] Global Xpress being an HTS data constellation, we think it cannot be immune to the pricing and growth pressures seen at Eutelsat and SES, albeit the magnitude of which is questionable. We note, however, the recent guidance cut may not be a coincidence," they explained.

Eutelsat also said renewals with the US administration were running at 65%, so since volumes were at a 'normal' 85% rate that meant pricing had seen "huge cuts" in recent months, Berenberg concluded.

"With Inmarsat discussing slower ramp of GX government revenues (ie timing, rather than structural), this raises questions as to whether the revenues are delayed to 2017/18 or in fact pricing pressure and competition is eroding this opportunity," the analysts added.

The London-listed outfit had suggested a slower ramp, but that revenues will come through at the same level next year and reiterated medium-term guidance.

"Inmarsat’s reasoning may not be realistic," Jenssens, Simon and berg said.

All told, the analysts said they still saw downside risks to its medium-term estimates for Inmarsat and even more so now.

They kept their 'hold' recommendation in place as wel las their target price of 880p.

However, they added that: "on our current estimates the stock still looks far from cheap [...] To justify our DCF-based GBp880 valuation, Inmarsat needs to start winning contracts to prove it can meet these expectations, particularly as competitors such as Gogo seem to be winning share."