Man bites dog: Satellite operator (SES) gets positive business forecast

January 20, 2017

At a time when satellite industry analysts and satellite services providers -- those who don't own their own satellites -- all saying what a horrible business it is to be a fleet operator, a positive note appears as a real outlier, even if it's from Wall Street. In its most recent assessment, Citi is bullish on SES, saying the consolidation of O3b and RR Media (the latter now core to the SES-branded MX1) will lift revenue. Citi says 2016 will be seen as the low point in the company's recent performance and that free cash flow will rise sharply starting in 2018. Credit: Citi

At a time when satellite industry analysts and satellite services providers -- those who don't own their own satellites -- all saying what a horrible business it is to be a fleet operator, a positive note appears as a real outlier, even if it's from Wall Street.

In its most recent assessment, Citi is bullish on SES, saying the consolidation of O3b and RR Media (the latter now core to the SES-branded MX1) will lift revenue. Citi says 2016 will be seen as the low point in the company's recent performance and that free cash flow will rise sharply starting in 2018.

Credit: Citi

PARIS — Satellite fleet operators have become the favorite piñatas of satellite industry analysts and companies buying satellite bandwidth.

Except that there’s no candy inside, only more overcapacity, both HTS and wideband, and a continued spiral in per-MHz bandwidth prices. 

It’s only natural to seek a contrarian’s view, even if it means going to Wall Street.

In its most recent assessment of European media trends for 2017, Citi offers a highly optimistic outlook for Luxembourg-based SES, which shares with Intelsat the title of world’s largest satellite fleet operator by revenue.

With Intelsat still struggling with debt issues that were not of its own making, attention focuses on SES for a view of what a profitable company with low leverage can do in the current environment. 

For Citi, 2016 was SES’s nadir. Starting this year and especially from 2018 onwards, the company’s prospects improve with the recent consolidations of the O3b medium-Earth-orbit Ka-band broadband constellation and the purchase of RR Media, now part of the SES-branded MX1.

5 launches in 2017: 3 SpaceX, 2 Arianespace 

SES has five satellites scheduled for launch this year, starting with SES-10 scheduled for a SpaceX launch in Q1. SES got an especially good price for this launch by agreeing to be the inaugural customer using a SpaceX Falcon 9 first stage that had flown before and was recovered.

The five satellites to launch this year carry a combined 127 transponders beyond whatever capacity they have that replaces existing satellites in the SES fleet. Half of that incremental capacity — 68 transponders — is on SES-16, set for a SpaceX launch late this year.

Three of these satellites — SES-12, SES-14 and SES-15 — also carry a total of 36 GHz of HTS, or high-throughput-satellite, capacity featuring small spot beams that allow multiple frequency reuse.

Leave aside the question of whether SpaceX will be able to lift its launch cadence enough to launch the three SES satellites slated for this year. Let’s also leave aside, just for the moment, the per-MHz pricing SES can hope to get for its new capacity. 

Focusing only on the capex-to-free cash flow ratio, Citi thinks 2018 should be the year when SES becomes a serious generator of cash flow.

What SES intends to do with that money will be interesting to see and may help change the satellite-sector conversation from sky-is-falling to something more positive.

 

Peter B. de Selding