EFTA01385531.pdf

> TMT Deutsche Bank Eutelsat — Laurie Davison, SELL, close €18.9, €14 tgt, 26% downside ■ Opex and capex cuts leave ETL exposed in 2018. Faced with falling ETL has materially outperformed ESE (which is at five-year lows) demand, SES invested to diversify and ETL made cuts. Thus ETL outperformed SES over 2017, but is now left with more fixed trunking data, —Eutelsat Stock Price (EUR) —SES Stock Price (EUR) less mobility and a weaker Government position. • We see 5 new worrying datapoints for core Video clients: (1) Polsat acquisition of fixed line operator, (2) Sky Italia exploring fibre distribution, (3) Naspers putting Multichoice up for sale, (4) TEF passing on Sky Brasil and, (5) TEF set to be first platform to exit satellite altogether within 5yrs. ■ We expect this to impact via pricing pressure in renewals. There is no risk of major clients leaving satellite in the near-term. But the barriers to a 01 "It cc, U) CO CO O O O O a move to fibre are falling as streaming costs fall and fibre coverage grows. est 2... N Government and fixed data have moved from help to hindrance. Both 87. C 3 a, C 2 C ISAT and ETL flagged Government as weak in Q3, and ETL lacks SES's Source: Factset geographical scope. ETL also saw unexpected fixed data weakness in Q3 with a 12% decline: its lack of diversification leaves it exposed. Video turned negative for both groups in 2016 after being the major growth driver for the past 10 years • We expect Eutelsat to miss guidance as a result. The current guidance requires a return to growth in the next twelve months. We view that as Video revenue Growth like-for-like & const. currency (% yoy)* optimisti and expect continued revenue decline. ■ We are 6-7% below consensus on fiscal '18 -'20. ■ The stock is not cheap. 7x EV/EBITDA vs telcos at 5x during their ex growth phase ■ Catalysts: guidance cuts - SES video rev growth' — ETL video rev growth' •KT V V V LO LO N tO (O (O N Related DB Research: ci a a a a 0 0 0 0 2 g o a a a Falling Stars: Magnificent desolation (Davison). Of v) V' N '' N Media 2018 Outlook: Don't flirt with mean revert (Davisoni Source: Company data. ' Quarters are aligned with Calendar Year. For Eutelsat, FY onchng is Juno. so 3O17 corresponds 10 1018 number. SES did not royal Video revs standalone prior to 2016 Deutsche Bank Research* European Equity Focus —Jaren!), 2011s 32 CONFIDENTIAL - PURSUANT TO FED. R. GRIM. P. 6(e) DB-SDNY-0086817 CONFIDENTIAL SDNY_GM_00233001 EFTA01385531