Inmarsat wobbles after US rival wins maritime safety certification

US-based Iridium Communications has been certified by the UN to provide global maritime distress safety system (GMDSS) services from 2020, which had hitherto been exclusively provided by UK-based Inmarsat since 1999.

GMDSS provides emergency communications at sea, relaying messages even if crew are unable to call for help. It is mandatory for ships exceeding 300 gross tonnage.

The certification, granted on Monday by the UN’s International Maritime Organization, capped a five-year battle from US government-backed Iridium against Inmarsat.

Inmarsat chief executive Rupert Pearce has claimed Iridium's GMDSS services were "utterly inappropriate" and would put lives at risk.

The FTSE 250 company made 40% of revenues and 55% of EBITDA from its maritime division last year.

Inmarsat's shares initially fell more than 13% to below 340p before coming back to 356.5p by 0920 BST.

Mike van Dulken, head of research at Accendo Markets, said Inmarsat's near-term guidance "may well be intact; the medium/long-term outlook may, however, require reappraisal".

"This is another blow for the company, hot on the heels of 41% shareholders rejecting the board’s remuneration proposal, something that may prove rather prescient in light of the potential impact of a monopoly loss on its business model," he said, noting that in March, Inmarsat said it awaiting approval of Fleet Safety, a new service incorporating FleetBroadband and a maritime safety terminal, on track for GMDSS recognition at the May 2018 meeting of IMO's Maritime Safety Committee.

"A new and improved product/service to bolster your current monopoly is one thing. This new version facing actual competition is very much another."

Analysts at RBC Capital Markets however were pretty sanguine, believing the timeframe for the impact of the IMO ruling "is very long", with Iridium intending to begin a GMDSS service by early 2020 and expected to target new ships entering service. "We believe it is unlikely that ship owners will rip out existing Inmarsat terminals (to replace with Iridium). All the evidence on ship owner/manager terminal replacement across the industry suggests very slow adoption."

Although Inmarsat does not earn revenue directly from GMDSS service or hardware, the monopoly "confers an advantage", RBC said, as it requires allships over 300 gross tonnes to carry Inmarsat terminals. Inmarsat can then offer commercial voice and data services over its terminals.

Having overshot to the upside in 2015, RBC felt Inmarsat's stock price "now looks to be undershooting" versus its 725p price target.