SES A.S. – Doubling Down on Secure Satellite Communications

It is not everyday that a new investment requires I analyse the finances and business potential of two businesses as well as their industry, however that is what I have had to do prior to my purchase of 100,000 shares in SES A.S. last week. SES A.S. is a leading global satellite communication service provider headquartered in Luxembourg and they are in the process of acquiring Intelsat, a U.S. headquartered company that claims to operate the largest integrated space and terrestrial network in the world.

As is often the case when trying to put my research, thoughts and opinions into words on this blog I find it all too easy to write far more than many may be interested in. I do it in the hope that it may be of help to someone, yet I know time is precious so here is the TLDR on why I invested in SES;

• A seemingly stable dividend in volatile times where the risk of capital loss is heightened
• New growth opportunities and reduced competition due to chaotic U.S. policymaking
• A financially stronger and more competitive business through the acquisition of Intelsat
• Potentially lower cost antennas and terminals coming available for better competivity

For those that enjoy the detail here you go…

Stable Dividends in Volatile Time

With the S&P500 having lost over 6% from its recent peak on February 19th 2025 and my personal outlook for the near future of the U.S. markets being substantially negative, there seems like a stark risk of capital loss for stock market investments in the months and possibly years ahead. Like Warren Buffett, avoiding capital loss is one of my investment priorities. However that said, and while I retain a diverse class of assets to spread risk (property, land and cash for example) I still expect some carefully selected company stocks will provide attractive growth potential during these volatile times.

Unlike less than a couple of months ago though, where I expected the growth in the share price of a company to be my primary source of gains, I now think gains need to be sought from a combination of dividends and share price growth. Dividends to hopefully provide a degree of predictable capital growth, through income reinvestment and compounding gains, supplementing more muted share price growth in the coming months and possibly years ahead.

I have chosen SES because I believe their approximately 10% annual dividend (currently €0.50 a share each year; paid as €0.25 in April and €0.25 in October) looks reasonably secure given its multi-year contract business model, as well as recent statements made by SES, such as within its recent annual report for the 2024 financial year (FY2024). Within that they reiterated a commitment to a ‘stable to progressive dividend’ as well as that should SES ‘meets its net leverage target (Adjusted Net Debt to Adjusted EBITDA) of below 3 times within 12-18 months after closing the Intelsat transaction, the company intends to increase the annual base dividend and then prioritise shareholder remuneration when allocating any future exceptional cash flows of the combined company.’

More detail about the dividend and my confidence in its sustainability can be found within my response to Simon Ryan’s comment at the bottom of my Investing for the New World (dis)Order post.

My forecast for total capital growth per share by the end of 2026, derived from a combination of share price appreciation as well as dividend reinvestment and compounding is 57.4% growth overall.

New Growth Opportunities and Reduced Competition

As I mentioned in my recent blog post there appears to be a move towards increasing national self-reliance in areas that are critical to defence, commerce and manufacturing. Given what has been described as ‘political chaos’ emanating from the U.S. right now, there may be significant additional potential business opportunities for SES in the coming months and years, arising from European and other international governments and businesses looking to avoid (or migrating from) U.S. operators as well as to deploy wholly new services for the new world (dis)order.

These opportunities include business in support of Ukraine’s and Europe’s defence but also as SES’ competitors are now potentially seen as tools to be leveraged by the U.S. and as such prudence may suggest they are avoided. SES is well position for this new business potential with its existing and planned satellite infrastructure, but also thanks its innovative multi-orbit European focused programme IRIS2, where it leads a consortium contracted to provide a secure satellite communication network for European governments, military and others.

Within this programme SES retains the opportunity to commercialise ‘over 90% of the MEO capacity and part of the LEO capacity’. This is significant future capacity and connectivity that may be possible to sell in advance of the service being commissioned later this decade, as customers possibly increasingly look to secure future arrangements amongst greater demand for certain firms. I would also not be surprised to see the timescales for IRIS2 expedited where possible, with additional income from the European Union to facilitate this, given the heightened urgency for a sovereign system.

While not growth as such, another possible positive outcome for SES from recent events, relates to its media (television) broadcast service revenue that has been gradually declining of late, as more people obtain digital television content via fixed line broadband. I wouldn’t be surprised that consumers become increasingly risk averse given the chaotic nature of politics right now and look to defer or avoid some unnecessary changes and spending, thereby continuing with existing arrangements, and even perhaps watching more content than before (thereby increasing bandwidth revenue for SES) as people stare google eyed at the increasingly concerning and bizarre news broadcasts.

Financially Stronger and More Competitive Through Acquisition

The acquisition of Intelsat appears to me as being born of necessity in response to increasing service and price competition, particularly from well funded, low earth orbit competitors such as Starlink and Kuiper (which hasn’t deployed its constellation yet), both of which are American firms. However given significant new concerns about the U.S. and companies seemingly closely aligned with the new administration, competition from them in Europe and internationally may have lessened somewhat recently.

Whatever the case maybe, the coming together of two of the largest satellite operators will undoubtedly improve the breadth and depth of SES’ offering, resulting in an enhanced multi-orbit operation including geostationary (GEO) and medium Earth orbit (MEO) satellites, supplemented by low Earth orbit (LEO) capacity through partnering with Eutelsat who operate the OneWeb LEO constellation. This expanded network secures additional revenue and potential additional revenue for SES in highly valuable and growth segments (e.g. direct to device), while providing a stronger financial position (partly through the significant expected cost reduction where unwanted or unnecessary duplication exists) as well as better positioning the company for future opportunities and investment.

The cost of acquisition in EUR has also reduced since the agreement was made. Initially it was stated as $3.1b however the cost in USD has now reduced to $2.6b following a dividend distribution by Intelsat to shareholders of $500m in September 2024. So the proposed acquisition will cost about €2.4b (plus about €300m of transaction costs) all of which SES is intending to fund following the issuing of €3b of new debt. Given the reduced acquisition cost, SES may decide to reduce the debt they take on which is a good thing in my opinion.

Despite current and intended additional debt, SES currently had over €3.5b in cash and cash equivalents at the end of FY2024 and that may partially explain why both Moody’s and Fitch reaffirmed their investment grade rating for SES as part of the acquisition process in 2024, although it should be noted that Moody’s has since changed its outlook for SES from “stable” to “negative” this year, citing increased competition in the satellite industry putting pressure on prices. In my opinion however, it may be a case that Moody’s recent opinion is already out of date, what with the rapidly changing world, where price competition from U.S. competitors may be of less relevance (or of no relevance now perhaps) to future European and international opportunities. SES’ response to Moody’s recent outlook change can be accessed here. SES’ Frequently Asked Questions about the acquisition can be accessed here.

What I particularly like about the Intelsat acquisition is the ability to remove costs from the formerly separate firms, where duplication exists. According to the SES there are ‘€2.4 billion net present value of synergies (representing 85% of the equity value for Intelsat and an annualised run rate of around €370 million) of which 70% will be executed within 3 years after closing of the transaction (expected during second half of 2025).’

The acquisition is not without risk however, in addition to the new debt and acquisition execution risk, it requires regulatory approval to be granted by amongst others the US’ Federal Communications Commission (FCC) and now I suspect the volatile ‘America First’ White House senior administration. According to January 2025 article on SatNews¹ quoting Nancy Eskenazi (SES’s legal counsel) reemphasized ‘the need to close the proposed transaction by June 2025’ in a recent letter to the FCC secretary Marlene H. Dortch.

While the timing is in doubt, in my opinion if the acquisition falls through SES is still well positioned with over €3.5b in cash and equivalents, some of which may work its way to shareholders or perhaps could now be put to better uses elsewhere given our rapidly changing world. One example of such is that the money could be put to use acquiring Eutelsat to gain control of their LEO constellation.

Lower Cost Antennas and Terminals

SES’ multi-orbit proposition has various advantages over solely low earth orbit competitors. For example SES’ MEO constellation 03b mPOWER can provide up to 10 gigabits per second download speeds² which is far in excess of Starlink’s LEO service’s quoted³ 0.22 gigabits per second (and 0.025 gigabits upload speed) in optimal circumstances. Latency for SES’ MEO constellation of 150 milliseconds over large areas, allows for real time applications and compares well with lower latency low earth orbit constellations, where such ‘predictability is impossible for erratic, multi-hop LEO journeys, which suffer jitter and packet loss.’⁴

As for LEO services from SES they (and Intelsat) are partnered with Eutelsat who operate the OneWeb LEO constellation. Mohammed Marashi (SVP Future Business & Innovation) of SES has also suggested⁵ SES may consider its own constellation, and will launch an LEO prototype ‘EAGLE-1’ in 2026 with co-funding by European Space Agency, the European Union (EU), the space agencies of Germany, Luxembourg, Austria, Italy, the Netherlands, Switzerland, Belgium and the Czech Republic, as well as the industry. Given the timescales involved for deploying their own LEO constellation I personally expect SES to work to strengthen its relationship with Eutelsat and as mentioned above, possibly even consider acquisition or merger.

One key advantage for Starlink now however is the far lower cost of their communication terminals, which allows for wider use of their services, especially by consumers. I am pleased to see recognition of the challenge by both SES and Intelsat, with work underway to reduce antenna costs as well as their deployment time, alongside work to reduce the cost of terminals. Intelsat for example is working with HiSky and Greenerwave and CEO David Wajsgras stated in September 2024 that both partners ‘have incredible, proven technology roadmaps to deliver much lower cost, improved capability terminals for almost any type of environment — fixed, on the move, ruggedized, non-ruggedized. Over the next 24 months [these terminals will put] Intelsat in a much more competitive position than what we have had in the past.’⁶

In the short term, given the urgency for sovereign satellite communication system deployment and adoption, we may see some government and commercial customers willing to now pay a premium for using SES / Intelsat antennas and terminals, or perhaps even a European wide subsidy to bear some of the costs. However complimentary work is also underway with British and European companies that can reduce the cost of terminals, such as with another new recent Double Bubbler investment, Ensilica plc, where collaboration with the UK Space Agency and the European Space Agency is helping accelerate their ‘chipset development enabling us to extend our portfolio of chips for the satellite broadband market with a focus on providing a complete solution for user terminals while reducing cost and power.’⁷

¹ Source. ² Source. ³ Source. ⁴ Source. ⁵ Source. ⁶ Source. ⁷ Source.