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Inmarsat shares dive 20% on maritime downturn

on Aug 04, 2011 at 12:03

Shares in British satellite operator Inmarsat (ISA.L) nosedived by more than 20% this morning as the company abandoned any growth prospects in its maritime business and blamed the start of US troop withdrawals from Afghanistan for declining customers.

The group, which provides voice and data services to ships, aircraft and remote locations, traded at a three year low of 366p, moving slightly higher at midday to 385p, a loss of 103.8p or 21.2%.

The company's interim results, released this morning, show that despite flat-lining growth in its core businesses, the company still expects to hit this year’s profit expectations of $517 million after better than expected gains from a spectrum-sharing deal with North American wireless broadband provider LightSquared.

Chairman and chief executive Andrew Sukawaty said: 'While we believe that a return to more normalised revenue growth in our mobile satellite services (MSS) business is only a matter of time, we expect near-term factors will constrain growth for longer than previously anticipated.'

The company's explained that a run of customers upgrading to their cheaper FleetBroadband service hurt revenue and said this upgrade dilution effect will continue to dampen maritime results until next year. Poor performance in its land division was blamed on a decline in government and military customers caused by the US pull out from Afghanistan, a situation Inmarsat admits is unlikely to improve.

Year on year revenues grew 24% to $359 million, while earnings before interest, taxes, depreciation, and amortization (EBITDA) grew 32% to $222 million. Shareholder returns also remain buoyant; interim dividends are currently up 10% to 15.4 cents and today the board announced a $250 million buyback over the next 12 months.

A number of brokers give Inmarsat a 'buy' rating. Mark James, analyst at Liberum Capital, acknowledged that while core revenues have 'undoubtedly disappointed', the company is still posting enviable growth through its LightSquared arrangements. 'We remain of the view that the current level materially undervalues both the core business (Liberum estimate £7 a share) and the US spectrum', James said.

Morten Singleton from Investec said, 'we believe the steps Inmarsat is taking are the right ones to protect its customer base, and should yield better growth and returns in the medium and longer term,' adding that the company, 'also offers major optionality on a number of fronts for potential further material growth through Lightsquared, Ka-band, Aeronautical services and the IsatPhone Pro.'

Analysis of fund manager holdings shows that BlackRock, the largest asset manager in the world, has been steadily reducing its stake in Inmarsat since last December. The Black Rock UK Dynamic fund, managed by Mark Littleton, has sold over two million of its shares in the satellite operator since last Christmas.

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