New Street Research initiates SES stock with neutral rating

New Street Research initiated coverage of SES SA (SES:GR) with a Neutral rating and a €5.80 price target, ahead of its planned acquisition of Intelsat. While acknowledging potential upside from C-band spectrum assets, analysts expressed concern that growth in the mPOWER satellite network may not offset declines in the GEO segment, leading to forecasts below company guidance. The report also highlighted SES's €6 billion in senior notes, potentially at risk of being classified as high yield, reflecting a cautious outlook on the integration and financial management.

Analysis

New Street Research has initiated coverage on SES SA with a Neutral rating and a €5.80 price target, indicating a cautious stance as SES prepares for its acquisition of Intelsat. Analysts at New Street Research project that the combined entity's financial performance will likely fall below SES's own mid-term guidance, citing concerns that the growth trajectory of the mPOWER satellite network may not be sufficient to counteract the ongoing declines in the traditional geostationary (GEO) satellite business. While acknowledging potential value from C-band spectrum assets, the report highlights a significant financial risk associated with SES's €6 billion in senior notes, which could face reclassification as high yield. Consequently, despite viewing SES's equity as fairly priced, the overall outlook remains tempered by uncertainties surrounding the successful integration of Intelsat and the effective management of the company's substantial financial obligations.

Key Decisions for Investors

• Closely monitor the execution and synergy realization from the upcoming Intelsat acquisition, as analyst forecasts currently lag behind company guidance.
• Track the revenue growth from the mPOWER network against the rate of decline in the GEO segment to assess the company's ability to navigate this critical business transition.
• Evaluate the risk profile of SES's €6 billion senior notes, particularly any indicators suggesting a potential reclassification to high yield, which would impact financing costs and investor sentiment.
• Consider the 'Neutral' rating and 'fairly priced' assessment as a basis for holding existing positions, while awaiting further clarity on Intelsat integration progress and mPOWER network performance before committing new capital.