Inmarsat's Global Xpress Future Of Satellite Broadband

Inmarsat (ISAT.L) has confirmed it will launch the first of three satellites for its fifth-generation satellite service in Q313 and its trading statement stated that full-year profit expectations are unchanged. Clearly, when it designed its future satellite platform Inmarsat thought carefully about how to access the revenue opportunity from government agencies’ increasing demand for mobile data. This planning opens a significant opportunity for the company.

Global Xpress – the future of satellite broadband
Global Xpress (GX), Inmarsat’s future satellite platform, will use the same frequency band as NATO military satellite communications. It has been designed to look and operate like the modern government systems and be interoperable with them. Inmarsat estimates the addressable market could be $3.5bn a year by 2020 and targets $500m wholesale revenues by 2019. Faster data speeds and greater bandwidth will meet demand for quicker broadband in many aspects of military, commercial and personal use and in Inmarsat’s key existing marine market.

Fully funded and less than a year until the first launch
Inmarsat’s $1.2bn GX project is fully funded and the launch of the first of its three fifth-generation satellites is planned for Q313. While Inmarsat has taken out insurance, there is the risk of launch failure destroying one or more satellites. If Inmarsat succeeds in delivering GX it will have a market-differentiated revenue generator with no competition on the horizon as yet.

Consensus estimates are bearish
Inmarsat is losing contracts in areas such as in-flight connectivity for airline passengers because GX will not be available with global coverage until late 2014. However, widening the range of existing services and migration of customers up the value chain should enhance earnings prospects.

Valuation: Good growth and low peak leverage
Low short-selling activity in Inmarsat reflects the confidence in this equity story. The shares trade on a sector premium but this is justified by the opportunity if GX succeeds and the lower peak net debt to EBITDA ratio (of 3x) than its peers.

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