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Inmarsat climbs on prospects for airline business and fourth satellite launch

Discussion in 'Market News' started by Lily, Dec 17, 2015.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
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    Morgan Stanley upbeat about the outlook for satellite communications firm

    Space has been in the news this week thanks to British astronaut Tim Peake and now it is the turn of satellite communications group Inmarsat.

    The FTSE 100 company has climbed 33p or 3% to £11.18 after analysts at Morgan Stanley issued an overweight recommendation and raised their target price from £10.80 to £14 on the basis on new growth opportunities for the company, including in the aviation sector and from a fourth satellite.

    The shares have enjoyed 37% performance year to date, but we still believe they offer potential upside in two areas. We think the satellite launches due in 2016 could be the catalyst for a further re-rating.

    (1) Aviation – very early days, but could be of significant value. Inmarsat is targeting two segments of the passenger aircraft connectivity market: (i) long-haul through its Global Xpress (GX) product and its agreements with Lufthansa and Singapore Airlines, and potentially other airliners to come; and (2) short-haul through its air-to-ground agreement with Deutsche Telekom. Using the example of Gogo in North America, but considering Inmarsat’s superior spectrum position and capacity (30 MHz versus 5 MHz), our indicative model suggests that this could be a near $150m per annum revenue opportunity, or around 12% of group sales, worth a net present value of $1.3bn or 190p a share. The bull case could be worth another 260p on top. However, 2016 will likely see higher costs associated with the rollout (our earnings per share fall 14%) and the full opportunity may not be realised until the next decade.

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