Brokers have issued some mixed opinions on the potential of Inmarsat PLC’s (LON:ISAT) shares following news of a rejected takeover offer by US satellite communications corporation EchoStar.
In a note to clients, Canadian bank RBC upped its price target for the FTSE 250-telecoms company to 850p from 725p, saying: “We estimate Inmarsat's spectrum is worth c.£10 per share, split European S-band (£3.25), US L-band (£5.00), Global Lband (£1.55). Spectrum is extremely important to Echostar and its sister company DISH (both controlled by Charlie Ergen).”
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“We estimate there are US$3.7bn of potential synergies with significant revenue, cost and capex synergies … Inmarsat has been trading at the bottom of its historical trading range of 6.5-12x EBITDA. However, it has now attracted a bid from Echostar, which it has rejected. We believe the situation could become a bidding war between multiple potential bidders” they added.
Inmarsat confirmed it had been approached with a takeover offer by EchoStar last Friday after its share price jumped 13.5%, however it said the offer had “significantly undervalued” the company, in another episode that is likely to fuel concerns around the takeover of leading British businesses following a hostile takeover of aeronautics manufacturer GKN by turnaround specialist Melrose Industries PLC (LON:MRO) earlier this year.
However, RBC’s sentiments were not echoed by City broker Numis, who issued a much more cautious note on Inmarsat following the takeover bids rejection and cut its target price to 430p from 450p.
Analysts at Numis said they did not believe EchoStar would follow through with a formal offer for the company: “Echostar overlaps little with ISAT's business so cost savings will be minor; it has no real involvement in L-band businesses (>80% of ISAT's sales) so revenue synergies will be minor also. In addition, Echostar may have to give up its European S-band license as ISAT owns the other of the two.”
They also highlighted payment uncertainty from Ligado, a company that Inmarsat leases its spare US spectrum to: “Last month, Ligado made a concession to reduce risk of services over its spectrum interfering with military aviation. This may or may not pacify US government agencies; even if it does, there is no set date for the FCC to reconsider giving Ligado its license back. Also, we think Ligado then wants to sell its license rather than build a network”.
Ian Forrest, investment research analyst at The Share Centre, commented: “While the shares have risen back to their highest point of the year, they are still trading 35% below where they were this time a year ago. The steep fall is clearly a big part of the reason behind EchoStar’s bid, but they will have to raise their offer to have a chance of being successful.
He added: “We retain our ‘buy’ recommendation as we believe that longer term attractions still remain with the shares. Orders from the Aviation division are increasing, government spending is once again picking up and the worst seems to be over in their Maritime division. Having said that the market has already expressed its fears regarding the sustainability of the dividend and so the shares are suitable for investors taking a contrarian approach and willing to accept a higher level of risk.”
In lunchtime trading Monday, Inmarsat shares were up 13.3% to 537p.
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