Over summer, US-based Echostar made an offer of 532p a share, which Inmarsat’s board dismissed as “very significantly” undervaluing the satellite group.
The offer was withdrawn shortly after, which means Echostar cannot return a new bid for six months, while RBC analyst Wilton Fry also doubts its ability to go much higher than it did before.
“We believe the strategic rationale for Echostar buying Inmarsat (global presence, Ka-band complementary, L-band and S-band spectrum) remains very valid and Echostar is probably still interested,” said Fry in a research note.
“However, Echostar is constrained not only by the six-month standstill (under rule 2.8) but also by its ability to issue equity given its weak multiple.”
Away from the takeover situation, the analyst has a couple of issues with what he had previously thought were two near-term catalysts for the shares: China and Ligado.
Inmarsat had positioned its fourth GX satellite over China for a few months while it carried out testing, but Fry believes the company “has given up” on the sale to the Chinese government, instead favouring a sale to a US company, possibly in the aviation field.
“We think the market is very unlikely to give the company credit (unless there is a substantial new contract announcement) given its track record to date in aviation,” read this morning’s note.
“By comparison, we had estimated the value of a Chinese wholesale deal would have been an incremental c. £1 per share. If we assume the market had factored in a 30% probability of it being used in China, the downside risk is c.30p.”
Downgrade to ‘sector perform’, PT chopped
As for Ligado, the US network company which pays licence fees to Inmarsat, is still trying to get approval from regulators to use its spectrum terrestrially.
Fry reckons the possibility of that happening has “significantly reduced” due to concern over interference, so he expects no further payments from January 2019.
The analyst moved his rating down to ‘sector perform’ from ‘outperform’, while he also chopped his price target down to 650p (from 725p), claiming that Echostar’s interest will stop shares from falling too far.
Inmarsat shares fell 4.4% to 523p in late morning trading on Tuesday.