Ka-band Plans Draw Mixed Market Reactions

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Publicly traded companies that have announced investments in Ka-band satellites for broadband connections have seen their stock react in substantially different ways, suggesting that the markets are still uncertain of how to judge Ka-band’s prospects, Wall Street financial analysts said.

London-based Inmarsat, which in August announced a $1.2 billion investment in a global Ka-band system focused on corporate and government maritime users, is the latest company to pay the price for the markets’ hesitation.

“Inmarsat was ending its capex cycle and generating cash,” said Clifton Marriott, a managing director at Goldman Sachs. “The public markets haven’t reacted particularly well” to Inmarsat’s move. “Investors expected to get dividends or other shareholder remuneration. They weren’t prepared” for a new round of spending, he said during the World Satellite Business Week conference Sept. 6-10 organized by Euroconsult.

Henrik Nyblom, senior analyst at Nomura, said Paris-based Eutelsat’s decision to invest in Ka-Sat, a large all-Ka-band satellite for consumer broadband in Europe, has similarly met with little shareholder enthusiasm. The issue is not cash-rich Eutelsat’s ability to finance the project, but apparent skepticism that Ka-Sat will result in 100 million euros ($130 million) in new revenue to Eutelsat per year within three years of its launch. Ka-Sat is scheduled for launch in December.

Nyblom said the market’s consensus is that the net revenue from Ka-Sat will be no more than 50 million euros per year in 2013-2014.

By contrast, the reaction of the London Stock Exchange’s AIM market for small, high-growth companies to Avanti Communications’ decision to invest in the much smaller Hylas Ka-band satellites has been enthusiastic. London-based Avanti, whose first satellite, Hylas 1, is scheduled for launch in November, has a market capitalization of 531 million British pounds ($832 million) on annual revenue of less than 10 million pounds.

Nyblom said Avanti’s trading appears typical of a stock favored by hedge-fund investors, whereas Eutelsat shareholders are more conservative, long-term investors. “It will be very hard for Avanti to see more upside,” Nyblom said of the stock.

Eutelsat Chief Financial Officer Catherine Guillouard said Eutelsat remains convinced that Ka-Sat is a sound investment.

“We have had no red flags to show on this,” Guillouard said. “We have [Ka-Sat service] distributors lined up in 30 nations. The decision was made in 2007 and it was a good strategy judging by the number of other companies that have followed since then. SES jumped in, Inmarsat jumped in. We are saying it will generate 100 million euros in annual top-line revenue by 2013-2014. It is costing us 350 million euros, to give you an idea of the return on deployed capital.”