Analysts at HSBC maintained their 'hold' rating on shares of mobile communications service provider Inmarsat on Tuesday, pointing out that as most of the firm's revenues, costs and capex were recorded in US dollars, recent gains in the pound would leave a dent in the firm's EBITDA.
“The recent strength of the GBP against the USD (up 5% since mid-November) has impacted EBITDA,” HSBC analyst Olivier Moral wrote. But he noted that changes in depreciation and amortisation and net financial charges had cushioned much of the blow.

“This is offset by changes in D&A and net financial charges. This has an overall positive impact of 5% on our EPS for 2017e and no change for 2018e,” Moral said.

Nevertheless, the negative conversion effect from weaker Sterling and the balance sheet roll-over effect led Moral to lower his target price for the stock from 570p to 530p.

Moral also pointed out the lack of newsflow since mid-November around the firm's Aviation arm, with scant information from governments or enterprises and no further deals for inflight communications with major airlines.

“However, we are a little concerned that the hybrid European Aviation Network, now fully available for use, has not attracted other airlines apart from those affiliated to IAG,” the Tuesday morning note read.

The ongoing dispute with US-listed rival Viasat over the validity of the S-band spectrum rights was likely the chief factor behind that, he said.

There were also concerns around the company's unfunded dividend.

“Because of the high level of capex and inflated opex, Inmarsat's dividend in cash is not covered. It could, however, remain at recent levels if management can demonstrate its confidence in the outlook. We believe a scrip dividend without cash would be artificial but is an option to consider, although it has not said anything on this. A cut is another, even though it would not please investors.

“If Ligado, the 5G project in the US that pays USD125m pa for ISAT's spectrum, was to consider a suspension of its payments to Inmarsat, we believe Inmarsat would have no other option than to drastically cut the cash dividend (we currently assume stability for the coming years). We would also consider cutting our TP by 100p per share in this scenario. Considering all these risks, we maintain our Hold rating.”

Shares of Inmarsat finished the session down by 5.16% to 428.40p.


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