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Global governments spend big on Inmarsat's fast connectivity broadband

The satellite communications company has reported better than expected results, thanks to its government division
March 9, 2017

Full-year results from satellite communications specialist Inmarsat (ISAT) have come as a pleasant surprise. Revenue up 4.3 per cent - accelerating to a 7 per cent rise in the final quarter - beat analyst expectations, as did a 5 per cent bump in the dividend. While some have questioned why such a capex-heavy company pays a dividend at all, investors were clearly relieved, sending the shares up more than 6 per cent on results day.

IC TIP: Buy at 728p

It's been a tough few months for Inmarsat and, indeed, the satellite communications market in general, where competition is hotting up and demand for older communications services is falling fast. Those difficulties were reflected in the group's maritime and enterprise businesses, where revenue dropped 3 per cent and 9 per cent respectively. But this was offset by strong progress in the aviation and government divisions. Here, demand for the group's new, fast-connectivity Global Xpress (GX) service is growing, helping to lift revenue 13 per cent and 15 per cent respectively.

GX - which made $78.5m (£64.6m) of revenue last year - is the world's only operator of Ka bands, a higher frequency band wave to those commonly used by satellite companies. But the launch of such a high-tech connectivity service doesn't come cheap. The GX project is estimated to have cost $1.6bn to date. That said, the absence of any major rocket launches in 2016 meant Inmarsat's capital expenditure dropped to $413m last year.

But "major infrastructure projects" will move up a gear in 2017. The fourth satellite in the GX project is due to launch - after a delay caused by a supplier explosion in 2016 - as are the higher-tech I-6 and S-band satellites. Thankfully, the group's debt position and spending requirements look more manageable following last year's $1.05bn fundraising, while it's thought capex for the next two years should be between $500m and $600m.

In 2016, rising finance costs also took a chunk out of the bottom line, although cash profit rose by almost a tenth to $0.8bn. Analysts at Beaufort expect earnings per share for the year to December 2017 of 58ȼ (2016: 56ȼ), from adjusted cash profits of $0.75bn.

INMARSAT (ISAT)

ORD PRICE:728pMARKET VALUE:£3.29bn
TOUCH:727-729p12-MONTH HIGH:1,024pLOW: 59p
DIVIDEND YIELD:6.1%PE RATIO:16
NET ASSET VALUE:274ȼ*NET DEBT153%

Year to 31 DecTurnover ($bn)Pre-tax profit ($m)Earnings per share (ȼ)Dividend per share (ȼ)
20121.342944844.39
20131.261892346.61
20141.293427648.94
20151.273386351.39
20161.332995453.96
% change+4-11-14+5

Ex-div: 20 Apr

Payment: 26 May

*Includes intangible assets of $796m, or 176ȼ a share £1=$1.22