Credit Suisse says Inmarsat's core competitive advantage unscathed, but axes target

Analysts at Credit Suisse slashed their target price for shares of satellite communications provider Inmarsat to reflect a more "cautious" outlook for government spending.

Although they described the company's fourth quarter figures as "solid", highlighting the resumption of top-line growth at Maritime and "re-assuring" medium-term guidance for growth, they pointed out how consensus estimates for the firm's operating profits had been marked-down sharply.

That, they believed, was the result of concerns about the medium-term outlook for growth in Inmarsat's public sector revenues and a sustained lack of visibility around its in-flight connectivity or IFC.

Nonetheless, "modest revenue headwinds in Government from 2018 could be at least partly offset by future contract wins & short-term operational revenue. Over 2018 we also expect Inmarsat's IFC airtime revenue to finally begin generating material revenue as aircraft installations accelerate," they said.

Furthermore, the company's competitive advantage in its core Maritime and Aviation markets remained unscathed.

"Material consensus earnings downgrades over the past 2 years, in our view, have been driven more by rising success-based costs and a delay to IFC revenue than any structural deterioration in Inmarsat's competitive position-reinforced by long-term contract wins in Maritime and Aviation IFC," they explained.

The analysts trimmed their estimates for sales growth between 2018 and 2020 by between 1% and 2%, leading to a reduction in their projections for growth in earnings before intrerest , taxes, depreciation and amortisation (excluding Ligado) by between 5% to 8% over that same time horizon.

They also increased their forecast for capital expenditures in 2020 by $550m.

All-in-all, they lowered their target on the shares from 810p to 610p, but stayed at 'outperform'.

Revenue and EBITDA was still expected to grow in a range of 5% to 7% over 2017 to 2022.

In terms of potential risks to keep an eye out for, Credit Suisse said the main one was that of a more "severe slowdown" in the global maritime industry.