Morgan Stanley cuts Inmarsat to 'equalweight'

Morgan Stanley downgraded Inmarsat to ‘equalweight’ from ‘overweight’ and slashed the price target to 800p from 1,350p as it cut its earnings forecasts for the stock.

The bank said that despite a 33% drop year-to-date, offsetting a 42% jump in 2015, revenue guidance is too ambitious and there is scope for earnings downgrades.

It pointed out that management has already cut 2016 revenue guidance by 4%, but kept 2018 targets, and MS expects these to be the next to fall away. It reduced its 2017-2018 earnings per share forecasts by 18-22%.

“Inmarsat targets revenue growth of 2% in 2016, but sees acceleration to 11-13% compound annual growth rate for 2017 and 2018. We think this looks too ambitious given pressure in the data business, with Eutelsat citing ‘slowing industry-wide growth’.”

It said the revenue boost for Inmarsat relies on Global Xpress, mostly in the maritime and government markets. However, Morgan Stanley sees two headwinds in maritime: a recession in the global maritime market resulting in vessels being laid up or scrapped, and increased competition in new growth markets, such as cruiseliners and oil & gas rigs.

While the bank acknowledges that Inmarsat is entering a growth phase where new satellites are coming into commercial service, it said that excluding the satellite launches, underlying revenue growth is broadly flat to low-single digit.

At 0950 BST, Inmarsat shares were down 2.9% to 733p.