Morgan Stanley cuts Inmarsat to 'equalweight'

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.