RBC Capital upgrades Inmarsat on possible China deal, M&A

Satellite communications services provider Inmarsat got a boost on Tuesday as RBC Capital Markets upgraded the stock to 'outperform' from 'sector perform' and hiked the price target to 1,000p from 760p.

It said the launch of the company's fourth GX satellite on 27 April offers a large catalyst, while EuropaSat's launch should drive European Aviation Network revenues.

The Canadian bank said the Global Express satellite due to be launched next month will use a Falcon 9 rocket from Space X.

"We believe there is a strong likelihood of this satellite being used, possibly exclusively, by China," it said, adding that any such wholesale deal would be very positive for Inmarsat and would be well received by the market.

"Quantifying revenue is guesswork, but since we know the three existing satellites are projected to generate circa $500m of incremental revenue five years after launch, this suggests to us that a decent fill rate is likely to make circa $167m/satellite. With a wholesale deal likely to be struck at a discount to this run rate, we would ‘guesstimate’ around $100m per year as a reasonable figure."

RBC also highlighted the possibility of M&A, suggesting that Inmarsat might be too small to remain independent. It said the profit warning earlier this year due to aviation highlighted the fact that it is still a small company.

"Longer term, its ambitions could be better achieved as part of a larger, complementary business," it said, having argued in August last year that a combination with Echostar/Dish would make perfect strategic sense.

At 1000 GMT, Inmarsat shares were up 1.8% to 807.50p.