SES SA reported solid results for Q1 in line with expectations. Video shrinks, networks growth accelerated. Measures to mitigate 2020 headwinds implemented…
We have made a strong start to 2020 with solid first quarter financial results including a step up in underlying revenue growth in SES Networks. Our Networks business now represents more than 40% of our business overall and mobility continues to stand out with 29% growth year-on-year as we have seen the full year contributions of important customer contracts signed during 2019. Strong control over discretionary costs in the quarter contributed to a reduction in recurring operating expenses year-on-year and reflects our ongoing focus on execution.Steve Collar, CEO
Based on a rather defensive business model, SES’ financial position seems ok, with Cash of 253 m€ as of March 31, adjusted for dividend payment and the undrawn 1.2 bn RCF serving as a comfortable liquidity reserve providing flexibility. According to my latest SES post, next debt repayments are due in March next year (650 m€ @ 4.75%), providing the opportunity to further lower debt costs when refinancing at more attractive rates.
The three most vulnerable industries (above) could negatively affect revenues, profitability and (most notably?) cashflows
- Aeronautical and cruise customers drove strong growth in the mobility sub-segment which is part of the network segment
(structure described here)
- short term setback regarding growth are to be expected as well as some minor negative cashflow effects
- longer term the demand for connectivity at sea and in the air should return to its growth trajectory, provided the ‘new normal’ is not too far off
- A global revival of big events could take some time and reduce the related demand for event driven connectivity which is a very small part of total revenue
My long term investment case still rests on the below assumption. I believe the market (i) discounts the accelerated spectrum relocation payments too much and (ii) underestimates the shif from video to network, since: Currently, the strong growth trajectory of the latter segment is hidden (overshadowed) in the consolidated results based on shrinking video revenues, which should stabilize in a few years
- Overall growth of 0.8% p.a. until 2025, with
- Video shrinking, but decelerating (2019-25 CAGR: -3.7%)
- Network segment driving long-term growth (CAGR 6.5%), driven by strong growth in the mobility subsegment
- An Ebitda margin 59.4% in 2025, slightly down from 62.6% in 2019, recovering from a modeled 58.8% margin in 2020
- 59.5% in Q1 in range
My last valuation from April indicated a fair value per share of € 14.33. Based on the above, I will not update my valuation (no significant changes: lower interest levels, negative short term effects, higher uncertainty regarding aero, cruise, events).
- Q2 performance will be much more important and potentially much more affected by corona-hit customers
My decision when to execute the purchase of SES shares was bad timing/luck.
I hope you enjoyed my post about SES (click here for all company posts).
Do you agree with my main assumptions and opinions?
Other Companies With Q1 Results
I recently covered two other companies reporting Q1 results, which you might find of interest:
- Check Point Software recently reported solid Q1 results with some additional business from all that remot work
- Pandora A/S’ physical stores network was hit hard by corona related lockdown globally, but Pandoras turnaround seems to work based on Jan and Feb dynamics, resulting in a strong increase in its share price