Satellite giant Eutelsat prepares for flotation

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EUTELSAT, the world’s third-largest satellite operator, is pushing a growth and cash story in its upcoming flotation as it latches on to a rapid tempo of share sales and a US mega-merger announcement that have stirred investors’ appetite.

Market regulator Authorité des Marchés Financiers has cleared an initial reference document and Eutelsat is due to file a detailed prospectus with pricing details to allow a listing before the end of the year. Long-term contracts and strong cash generation, backed by a rising demand for satellite television and internet based communications, are the company’s pitch to the equity market.

“We have significant growth potential,” said deputy chief executive Jean-Paul Brillaud. He points to the company’s 23-strong fleet of satellites, with an average age of 4.4 years, compared to an industry average of seven years and an operating life of 15 years. Its Hot Bird satellites occupy strategic orbital positions with coverage over Europe, Middle East and the Mediterranean, offering broadcast clients access to growth markets. Eutelsat expects 2% revenue growth in 2006, doubling to an annual average 4% over the following three years

“One of the key attractions is the the strength of our revenue backlog, at E4bn ($4.88bn, £2.68bn), representing 5.5 years of revenues,” Brillaud said. “This makes our revenue stream highly predictable.”

The revenue stream has recently been lifted by a new 20-year contract with Sky Italia, News Corp’s Italian pay TV operation.

Earnings before interest, tax, depreciation and amortisation (ebitda) for year ending June 30 2005 was E578m, on sales of E750.4m, giving a margin of ebitda over sales of 77.1%, at the upper end of the industry range.

Shares in competitor SES Global, whose Astra satellite carries the Sky channel, trade at a multiple of 9.5-10.5 times ebitda, giving a benchmark for pricing Eutelsat’s offering.

The growth is expected to come from broadband and television, as pay television takes hold among viewers in Europe, Russia, Africa, and the Middle East switch on to satellite television. “We expect Russia and Africa will evolve quickly,” Brillaud said. Eutelsat is the carrier for Russia’s sole pay TV operation, NTV-Plus, while the Middle East shows strongest growth.

Some 68% of Eutelsat’s sales come from media clients, notably broadcasters, for whom the leap in standards to high definition television (HDTV) could spur demand for capacity. Around 22% derives from data networks and broadband services, with the rest from leased capacity to other users.

Eutelsat is owned by private equity funds Eurazo, Cinven, Goldman Sachs Capital Partners, Spectrum Equity Investors and Texas Pacific Group. The company will use some of the stock sale to pay down debt of E3.2bn to below five times ebitda.

This year, Inmarsat of the UK, PanAmSat and New Skies listed and SES Global, whose Astra satellite carries News Corp’s Sky channel, doubled the size of its public float.

Intelsat said last month it agreed a $3.2bn takeover of PanAmSat. Eutelsat would have liked to bid for PanAmsat but some shareholders balked at the investment.

Source: The Business

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