Inmarsat Share Discussion Threads

[frazboy] 15/11/2017 07:58

Steelwatch

Millenium increased their short position on the 10th, I don't see any other changes, so it would appear that if the hedge funds do have a target price in mind then we haven't reached it yet.

[mastermatto] 14/11/2017 21:54

Inmarsat slipped 3.2 per cent to 499.6p on confirmation that it will be cut from MSCI’s Europe Index as part of a twice yearly review.

[shroder] 14/11/2017 21:42

Deutsche Bank AG look to have been buying, never 100% sure with some of these TR1's what with swaps ect..

edit: yup, last notification on fund fact sheet appears as follows, so roughly 2.5% increase.

Deutsche Asset Management Investment GmbH 12.16M 2.66% -1.01M 0.06% 10/24/17

[the original goldbug] 14/11/2017 17:08

Aleman, I don’t wish to go round in a circles with you. The broker notes I read say net debt grew by $1b since 2013. Shareholder equity hasn’t changed in the same time period.

This is a mildly alarming trend and unsustainable in my view.

BTW I actually said that the current rate of capex and the dividend aggregated were unsustainable. I know this is a message board and we all have sensitivities to the validity of our opinions, but this discussion is starting to deviate into a out of context point scoring which is tiring. No offence to you personally, but I don’t which to argue this out with you as though it were a life and death litigation.

[aleman] 14/11/2017 16:45

The Original Goldbug - I only dismissed posts without numbers as guff.

You worry about $500m per year capex as unsustainable yet they have executed $1500m in the last 3 years without much change in net debt. The following two paragraphs suggest the investment in aviation will pay off. If aviation margins return to 2016 levels on expected higher revenues, then EBITDA will increase from 2019 on, all other things being equal. That $500m per annum of capex that they have already been covering should have more EBITDA to cover it - and pay dividends - in future. The market seems to have become too negative about the dividend being uncovered for 2018. Okay net debt is not low at around 2.5 x EBITDA but it won't look bad if EBITDA is going to rise from 2019, and the share price fall seems to have more than already discounted the debt level.


Going forward, and as our results for 2017 to date clearly demonstrate, we still expect that Aviation EBITDA margins will continue to be impacted by our efforts to build our market position in IFC. Revenues will initially be low margin installation revenues rather than higher margin air time revenues, as we drive equipment installation programmes for certain customers. In addition, indirect Aviation costs will continue to rise as we invest in IFC market capture and delivery (we continue to expect that indirect costs in Aviation will increase to around $70m for FY2017).

As a result, we expect that, over the years 2016 to 2021, EBITDA margins in Aviation will fall from over 60% in 2016 to around 50% in 2017 and then to around 40% in 2018, after which higher revenues, improved revenue mix and more stable indirect costs start to deliver a return to 2016 margins in Aviation.

[essentialinvestor] 14/11/2017 16:40

Made a similar point on the GSK board recently.
When the market questions dividend sustainability,
there is often a high price to pay for that income.

[steeplejack] 14/11/2017 16:24

"Admittedly besides looking at the financials and forming my opinions on those I am short of information on the Inmarsat product versus says VSAT and others."

Yes,I'm in the same boat.The success of technology is all very hit and miss it seems to me,often the best technology can be eclipsed by better marketing.

[the original goldbug] 14/11/2017 16:17

Further to Steeple’s comments above, it is tempting to conclude that management underestimated the competition in aviation.

A capital intensive growth company should be self financing rather than increasing the equity risk by gearing up the balance sheet.

Admittedly besides looking at the financials and forming my opinions on those I am short of information on the Inmarsat product versus say VSAT and others. Is it conceivable for example that VSAT have a lower cost offering and are set to dominate the exciting aviation space? Or is it really just a capex game and provided you spend you gain your market share accordingly?

VSAT has popped this week while ISAT flounders, and I put it to those of you more famaliar with the technology angle why that is?

[steeplejack] 14/11/2017 15:59

It's a question of priorities and frankly I don't see that it's a priority to maintain the dividend that currently provides a yield of well over 8%.The priority is to grow the business and fund capex to gain a real foothold in a growth market.As I've mentioned before,even if they equalised the interim and final payments,cutting the final by a third,the yield would still be around 6.6%.The dividend is uncovered for the foreseeable future,that's the key.The yield is of little consequence in itself,if the share price was double the current level and the shares yielded a well above average of 4.25% ,the cash flow draining dividend would remain a concern.The management only woke up to the fact that they were paying an overly generous dividend quite recently.Unquestionably,bad planning.Companies,like Indivior (admittedly a very different company in a different market ) decided to stop all dividend payments to grow the business a year or so back.You might like to check out that share's performance since,as volatile as it is.

[essentialinvestor] 14/11/2017 15:30

Got a few down to 4.90, it dipped to 4.88 for a few minutes.

[the original goldbug] 14/11/2017 15:04

Aleman, you may be right on the capex tailing off. However, my reading of the consensus numbers was that it would stay stubbornly highly at $500m for the years ahead.

My real point is this however, that net debt has grown by $1b over the last 4 years while there has been no growth in shareholder equity.

Yes, they maybe able to squeeze out another year of dividends, but unless capex falls or profits start growing more rapidly, they will run themselves into a cul de sac.

Clearly it is not an unreasonable view to take seriously and should not be dismissed as mere guff.

[zcaprd7] 14/11/2017 14:54

Everyone's looking at the rearview mirror, happy to build a position here for my sipp, will be £10 in 18-24 months I reckon...

[aleman] 14/11/2017 13:56

The Original Goldbug - you did not comment on my last post so I will repost it:

Aleman
10 Nov '17 - 11:24 - 2470 of 2506 6 0 Edit

They've got a high capex for another 5 quarters then it improves. Why cut the dividend? Capex will be about $700m+ over that period. They've already executed about $1,500m of capex in the last 3 years and net debt has not moved much. Interest has gone up a bit. EBITDA is looking like $750-800m and seems set to rise with turnover guided to rise 11% next year on midrange assumptions, even if air margins remain weakish. Explain why they can't just borrow $200m and take net debt to $2200m if EBITDA is going to be $800m+. Interest on that ought to be about $115m, so about 7 times covered. Dividend cost will be about $235m. Interest and dividend will be about $350m. That still leaves $450m, which should rise in subsequent years. With capex easing in 2019, they can then pay maybe $200m off the debt and be back to the same debt but with EBITDA higher than now. Somebody explain why they can't be paying a $250m dividend then. There's a lot of guff being spouted but no numbers.

After looking at the numbers, I think the dividend looks sustainable. Can you use numbers to explain why it isn't, please?

[andyj] 14/11/2017 13:50

Steep recent rise in the % of shorts held here, no reason for them to close unless a bidder emerges. Not good for long term holders, but the price will be driven down to a price at which it becomes an excellent buy. We aren't there yet.

[jakedog2] 14/11/2017 13:50

Cut divi by 50%.... would still equate to an attractive 4%+ at these levels....

[essentialinvestor] 14/11/2017 13:42

Second small lot, Numis had 4.80 recently,
not that I pay much notice to broker price targets.

[the original goldbug] 14/11/2017 12:47

RC Turner, the issue that is more pertinent, although related to your points, is that an ongoing capex program and generous dividend payment are unsustainable if they are being financed by debt and the equity is not commensurately growing. It’s really not rocket science.

The sooner they cut the dividend the better. The market is basically saying the dividend is unsustainable at these levels.

[rcturner2] 14/11/2017 12:35

I take the view that the shorters have taken advantage of the short term stress on the numbers that has occurred as a result of increased capex verses legacy revenue. I am nervous here, but the director purchases give some comfort.

[essentialinvestor] 14/11/2017 12:26

Bought a small amount at 500.45.

[rcturner2] 14/11/2017 12:15

I am a holder here.

[essentialinvestor] 14/11/2017 12:09

RCT, you tempted on the long side here, or not?.

I warned about ISAT previously on the SHA board, as FCF looked weak.
Was surprised my the move from near £6 back to £8.50.
One of the reasons I don't go short individual stocks is find timing difficult
on the short side.

[w1ndjammer] 14/11/2017 11:46

What do you do when you are well in the money, do you take profits

or do you watch all those gains dwindle away.......

WJ.

[rcturner2] 14/11/2017 11:21

The shorters are well in the money, their costs are irrelevant.