Eutelsat and OneWeb predict ‘double digit growth’ post-merger

Earlier this year, Eutelsat and OneWeb announced plans to merge. Yesterday they provided a Capital Markets Day strategic update in which they said that they expect the enlarged company to achieved double digit revenue growth “over the medium to long-term”. If proved correct, they will top revenues of €2bn and EBITDA of €1.4bn in 2027.

Eva Berneke

Eva Berneke, CEO of Eutelsat, and Neil Masterson, CEO of OneWeb, said: “The proposed combination between Eutelsat and OneWeb represents a decisive leap forward for satellite connectivity. Eutelsat’s initial investment in OneWeb was underpinned by a strong belief that the future growth in Connectivity will be driven by both GEO and LEO capacity. (The merger) will create a powerful global player with the financial strength and technical expertise to accelerate both OneWeb’s commercial deployment, and Eutelsat’s pivot to Connectivity”.

Analysts at Berenberg expressed scepticism about the impact of the merger, which it said “completely changes the investment case and risk profile of Eutelsat, from one of a highly cash-generative, dividend-paying value stock to a non-cash-generative, non-dividend-paying growth company”.

Berenberg said that “he scale of near-term earnings and cash-flow dilution, alongside the increase in the risk profile, will likely put most traditional satellite and telecoms investors off in the near term”, while noting that Eutelsat had strong backing from a number of French institutions, including Bpifrance, CMA CGM and Fonds Stratégique de Participations.

Berenberg’s analysts said that the main argument in favour of the merger, projected very strong growth in the satellite connectivity market, was somewhat undercut by Eutelsat’s possibly “overly conservative” revenue projections.

The bank said that the case for OneWeb to be a commercial success was “compelling” but expressed doubts about the value of revenue synergies from the deal and about future capex, based on Eutelsat’s claim that further technology upgrades beyond a second-generation of the platform would not be needed.

The update came as Eutelsat released less-than stellar results for Q1 2022-2023 yesterday.

Total revenues were €290.5 million, up 2% on last year, but down 4.3% on a like for like basis. The lion’s share of this total came from Broadcast Services, which accounted for €170.1m (58.5%). This was down 4.2% year on year, and down 7.4% like for like.

Berneke called the results “in line with expectations. Despite limited available capacity at this stage, we continue to record a strong double-digit growth in Fixed Broadband and Mobile Connectivity highlighting the massive long-term potential for both applications, while our mature broadcast activities declined in line with expectation.”

At time of writing, around 7,000 television channels are broadcast by Eutelsat to one billion viewers equipped for DTH reception or connected to terrestrial networks.