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Underrated Inmarsat set to rocket

CONTRARIAN TIP OF THE YEAR: Problems at peers have knocked the satellite group's shares, leaving them primed for a re-rating
Underrated Inmarsat set to rocket

We think the market has overblown the severity of recent problems at satellite giant Inmarsat (ISAT) and the shares substantial re-rating potential make them an excellent contrarian play for 2017. Launch delays, a profit warning from a peer and patches of weak trading have sent the shares spiralling to their lowest level in years. But recent contract wins, improving end markets and surging long-term demand for wireless connectivity suggest the sell-off has been overdone.

IC TIP: Buy at 734p
Tip style
Growth
Risk rating
High
Timescale
Long Term
Bull points
  • Exposed to surging data demand
  • Shares trade close to a four-year low
  • Large and growing yield
  • Blue-chip customers and contract wins
Bear points
  • Marine and enterprise weakness
  • Negative market sentiment

Inmarsat's satellites beam wireless internet to customers on land, at sea and in the air. Management expects Global Xpress (GX) - its worldwide, high-speed broadband network, which entered commercial service in late 2015 - to generate $500m (£405m) in annual turnover by the end of 2020, not including any contribution from a fourth GX satellite, now scheduled to launch in 2017 following problems at partner SpaceX. The delay means Inmarsat now expects spending of $500m to $600m in 2017, but that looks manageable given its recent raising of $1.05bn of long-term capital.

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