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Inmarsat cuts payout after capital drain

The satellite communications specialist needs more capital for its aviation products
March 9, 2018

Inmarsat’s (ISAT) capital expenditure commitments increased by 45 per cent during 2017, as the group sought to grow its share of the in-flight connectivity (IFC) market, but that's set against an 8 per cent rise in cash profits – something had to give. To ensure it has sufficient capital to take advantage of the opportunities within this part of the aviation industry, management cut the final dividend by almost two-thirds to 12ȼ a share and rebased the annual level for this year to 20ȼ.

IC TIP: Hold at 433.7p

Focusing investment on the IFC market makes commercial sense, given the rate of demand growth, and the "increasingly clear opportunity that exists for Inmarsat". Last year IFC sales almost doubled, with 194 aircraft now installed with Global Xpress terminals. Airlines including Qatar Airways, AirAsia and Philippine Airlines signed up for its IFC services last year, with around 1,300 aircraft covered under signed contracts. However, given many of the contracts are in the lower-margin early stages rather than the more profitable air-time after sales work, last year’s 10 percentage point decline in margins is expected to repeat in 2018.

While its government business drove underlying cash profits, belt-tightening and operational slowdowns from its core customers will likely moderate sales growth in the near term. Meanwhile, the group's enterprise and maritime businesses are operating in an increasingly competitive environment. At the former, sales declined 8 per cent to $133m (£95.7m), as its broadband global area network and satellite phone terminal products had to contend with land-based KA-band, Ku-band and cellular alternatives. Maritime orders began to recover, with the order book for its VSAT products at 720 vessels by the end of the year, up from 500 the same time the previous year. Sales there still declined 2 per cent to $565m.

Prior to these results, analysts at Numis gave adjusted EPS of 38ȼ for the December 2018 year-end, falling to 16.4ȼ in 2019. 

INMARSAT (ISAT)    
ORD PRICE:433.7pMARKET VALUE:£ 1.99bn
TOUCH:433.7-434.4p12-MONTH HIGH:865pLOW: 419p
DIVIDEND YIELD:5.5%PE RATIO:14
NET ASSET VALUE:274p*NET DEBT:166%
Year to 31 DecTurnover ($bn)Pre-tax profit ($m)Earnings per share (ȼ)Dividend per share (ȼ)
20131.261892346.61
20141.293427648.94
20151.273386351.39
20161.332996553.96
20171.402304233.62
% change+5-23-35-38
Ex-div:19 Apr   
Payment:25 May   
*Includes intangible assets of £789m, or 172p a share