Questor share tip: Inmarsat remains a hold

Inmarsat
720p+3.5p
Questor says HOLD

It's been a while since Questor dialled into satellite communications business Inmarsat [LON: ISA] – more than three years, in fact.

Back then the verdict was hold, with the shares at 619p as the FTSE 250 group announced a deal to lease spectrum to US broadband provider LightSquared.

In the intervening period the shares fell as low 389p as the company was hit by US forces pulling out of Iraq – the American government remains Inmarsat’s single biggest customer – though they have since more than recovered.

Wednesday’s close at 720p comes despite more recent troubles. The LightSquared deal went sour when the business filed for bankruptcy in 2012 – Inmarsat says payments are subject to “significant uncertainty” – and in May a Russian rocket blew up on launch, delaying the full introduction of Inmarsat’s Global Xpress (GX) satellite network. Inmarsat has since secured the services of Elon Musk’s SpaceX for launches.

Yesterday Inmarsat used an investor day to communicate how it sees the future. Bright is the word. Digital technology means the world is getting more connected and Inmarsat is well placed to fulfil that need. The presentation highlighted that global mobile data traffic is expected to increase from 2013 levels of 1.5 exabytes (a million terabytes) a month to 15.9 exabytes in 2018, and customers want that data no matter where they are. This is where Inmarsat’s GX network comes in, providing such a capability.

Currently 51pc of revenues come from maritime users, where Inmarsat helps fulfil safety and regulation needs, as well as keeping crews busy Facebooking on long voyages. In the future the company sees its data links helping to control drone cargo vessels.

The US government represents 17pc of revenues and other governments 10pc, and Inmarsat says its services in these areas “connect those who protect”. With the world not getting any safer and company satellites ready to provide communications where there might not be any in the first place or they have been destroyed, there is little doubt its services could see increased demand.

Enterprise – businesses such as media, energy and finance – provides 14pc of revenue and aviation is 8pc, but this will grow as airline passengers demand Wi-Fi while at altitude.

Having yielded 3.8pc last year, but forecast to rise to 4pc this year, Inmarsat isn’t a huge dividend payer, but it’s not bad. The current price-earnings ratio of 23.1 makes the shares look fully valued though, so Questor once again advises a hold – but it’s one to keep an eye on.