Inmarsat climbs 5% on US hopes
(Guardian Web Via Acquire Media NewsEdge) Inmarsat is soaring on hopes for the satellite operator's US business.
The company has a co-operation agreement with US group LightSquared, but payments have been in abeyance after the latter went into bankruptcy protection. But analysts at Morgan Stanley believe a bid for LightSquared from rival Dish could see the situation resolved. Analyst Terence Tsui at Morgan Stanley moved his recommendation on Inmarsat from equal weight to overweight, and raised his price target from 740p to 820p, saying:
We believe that Inmarsat's US spectrum asset is undervalued by the market. We think that LightSquared's co-operation agreement with Inmarsat will eventually be reactivated given (1) Dish's $2.2bn bid for LightSquared assets in July. (2) Dish's Chairman, Charlie Ergen, personally buying around $1bn of LightSquared debt in early July. By the end of September, we could be in a better position to see if any competing reorganization plans emerge. The co-operation agreement is suspended until April 2014, but with LightSquared's ownership status clearing, we suspect that the market will likely soon discount the lease agreement being turned back on.
The full value of the co-operation agreement is worth $145m per annum growing at 3% or 240p per share to Inmarsat, on our calculations.
Morgan Stanley also pointed out that Inmarsat's core business is also improving, as shown by better than expected second quarter earnings reported early last month. Strong growth in demand for broadband on ships and aircraft outweighed US defence spending cuts.
The bank also said that fears of a prolonged delay to its Global Xpress programme after the recent failure of a Proton rocket - the type which Inmarsat is expected to use - had been overdone. It said the Inmarsat satellite was on track for launch by early 2014.
Inmarsat is currently 33p higher at 728p, a near 5% rise which makes it the biggest riser in the FTSE 250.
(c) 2013 Guardian Newspapers Limited.
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