Eutelsat Started at 'Hold' by Berenberg on Rising Capex, Execution Risks

Berenberg initiated coverage of Eutelsat Communications (EPA:ETL) with a "Hold" rating, arguing that a significant increase in capital spending and execution risk is offsetting the potential growth from its key satellite projects. The investment bank set a price target of €2 for the Paris-based satellite operator.

Following the announcement on Wednesday, shares in Eutelsat fell 2.6% to €1.69. Berenberg's price target implies approximately 15% upside from the stock's September 1 closing price of €1.74. The brokerage noted it would become more positive on the stock given "evidence of solid execution," but currently prefers rival operator SES.

Higher Spending Clouds Outlook

At the core of Berenberg's neutral stance is the substantial investment required for Eutelsat's future projects. The company plays a significant role in the SpaceRISE consortium for IRIS², an EU-funded initiative to create a European alternative to SpaceX's Starlink. While this presents a major opportunity, it comes with a heavy financial commitment.

Berenberg highlighted that Eutelsat has committed to an additional €2.4 billion of capital expenditure beyond fiscal 2029. This spending is earmarked for both the IRIS² network and the replenishment of its recently acquired OneWeb low-Earth orbit (LEO) constellation, which now includes an additional 229 satellites.

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Balance Sheet and Revenue Concerns

The brokerage warned that this higher spending "materially increases execution risk" for Eutelsat. It also largely negates the financial benefit of approximately $504 million the company is set to receive from C-band spectrum incentive proceeds.

According to Berenberg's forecasts, the increased investment could push Eutelsat's leverage toward four times EBITDA, placing significant pressure on its balance sheet. The bank also expressed skepticism about the company's medium-term earnings profile, stating that Eutelsat's revenue target of €1.5 billion to €1.7 billion by fiscal 2029 looks "difficult to achieve."