A Deutsche Bank research note written ahead of SES’s 2019 earnings report due on 26 February 2020 is raising the possibility that SES and its smaller rival Eutelsat could merge sometime in 2020, according to a 14 January 2020 report in online television industry publication Advanced Television.
In the research note, Laurie Davison, Deutsche Bank’s lead media analyst suggests that the prospect of a merger between the two European commercial satellite communications providers is now “higher” as Eutelsat could announce further cuts in its revenue guidance, likely issued no later than 30 June 2020 – the end of Eutelsat’s fiscal year.
“Eutelsat management is now performing a private equity approach in public markets and SES is pricing in close to zero for C-band proceeds after the fall in stock [price] following the FCC announcement in November. But we would look to full-year results as an opportunity and advocate using any stock fall on a potential dividend cut to add to positions,” writes Davison in his Deutsche Bank research note and quoted in Advanced Television.
Regarding SES’s financial results, Davison writes, “We expect a solid 4Q and consensus is undemanding, already below the lower end of guidance, for next year too. But there is still some risk of a negative reaction to a dividend cut.” Davison says that there is an implied 46 percent upside in SES stock, which suggests that the company may cut its dividend to shareholders from €0.80 per share to €0.60. As recently as 2016 SES was paying shareholders €1.34 per share.
Davison adds that, “Our conversations with investors over the past month have shown some awareness of the [dividend] risks. But for a historically yield-driven name, there is downside risk. We value the underlying [value of] SES at €11 and, including C-Band [windfall revenues], our Target Price is €18; implying 46 percent upside potential.”
Davison is quick to acknowledge, however, that Deutsche Bank is the only commercial bank to speculate that SES might cut its dividend to shareholders.