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07 February 2014

Global

Equity Research

Global Satellite Connections Series

Industry revenue outlook to improve over 2014

Figure 1: Global Satellite performance vs. MSCI Telcos Europe Index

Source: Satellite companies (SES, Eutelsat, Inmarsat and Intelsat), constant FX

■ Global satellite industry revenue outlook to improve over 2014. 2013

proved a very challenging year for the industry with downward revenue

pressure from: 1) US DoD spending cuts; 2) launch delays (funding

issues/failures); and 3) Africa/Middle East oversupply. As a result, over 2013,

most global operators rebased 2014-16 revenue guidance. Despite this, we

expect US budgetary pressure to ease over 2014 while we continue to

expect overall global capacity demand to exceed global supply from 2015.

■ While launch delays remain an industry hazard, we expect US Defence

budgetary pressure to reduce following US Congress approval of a two-

year 'mini-deal', which will see US Defence spending rise slightly yoy in 2014

instead of a further ~$20bn decline previously agreed under the sequester.

■ DTH compression ratio concerns overdone. We remain confident that

DTH capacity freed up from both higher compression techniques and a

reduction in time-shifted SD broadcasting will be redeployed to boosting SD

picture quality and increasing HD/4k channels as the cost of 4k TV sets falls.

■ Africa/Middle East oversupply now the biggest industry headwind over

the next three years. With several developing world governments launching

new national capacity, we currently have low visibility on: 1) how quickly

demand will soak up the current oversupply; and 2) whether national

government satellite launches will reduce the need for commercial capacity.

Eutelsat remains the most exposed operator to this issue.

■ We reiterate our positive view on Inmarsat growth, despite cutting EBITDA

forecasts 5-7% (GX costs). Among the global FSS players, we prefer SES

(Outperform) to both Eutelsat (reinstating coverage with a Neutral rating)

and Intelsat (Neutral). We rate NewSat Outperform.

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Research Analysts

Paul Sidney

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Joseph Mastrogiovanni

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Henrik Herbst

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Francisco Sanches

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Bradley Clibborn

61 2 8205 4465

[email protected]

07 February 2014

Global Satellite 2

Table of contents Key charts 3 Global satellite industry trading multiples 4 Summary of global satellite stock views 5 Global Satellite—Industry trends for 2014 6

1. US Defence budget cuts—over the worst 6 2. 4k (Ultra-HD) to offset compression ratio technology 8 3. Shutdown of SD channels to partially offset 4k 12 4. Oversupply in Africa and Middle East regions to continue 12 5. High-Throughput constellations to drive accelerating data demand 14 6. Terrestrial Fibre and mobile build-out not a near-term threat 17 7. Global satellite industry consolidation to continue 19 8. Satellite launch delays remain an 'industry hazard' 21

FSS supply/demand model—Extended Europe 24 Video and data applications—only small changes to forecasts 25 Supply—2013-15 update for new launches and delays 28

Global demand and supply model 29 Satellite operators' exposure to key global industry themes 31 Intelsat S.A. (I): Reiterate Neutral rating and TP $25 34 Inmarsat PLC (ISA.L): Global VSAT market expected to be worth $3bn by 2020 38 Eutelsat Communications (ETL.PA): Reinstate coverage with Neutral 46 SES (SESFd.PA): Preferred Global FSS play 50 NewSat Limited (NWT.AX / NWT AU): Reiterate Outperform rating 54 Appendix 1—PEERs maps 63 Appendix 2—Credit Suisse HOLT® 66

07 February 2014

Global Satellite 3

Key charts Figure 2: Extended Europe Transponder demand vs.

supply (Jan 2014)

Figure 3: Global Transponder demand vs. supply (Jan 2014)

0

100

200

300

400

500

600

2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E

trpx (

36

MH

z e

qu

ivale

nt)

Incremental capacity Incremental demand

0

100

200

300

400

500

600

700

800

2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

C-

and

Ku-b

an

d 3

6M

z t

ransp

on

de

rs

Incremental supply Incremental demand

Source: Company data, Lyngsat, Credit Suisse estimates Source: Company data, Lyngsat, Credit Suisse estimates

Figure 4: US DoD budget under different scenarios Figure 5: HD vs. Ultra HD channels growth in the for the first

7-year period

460

480

500

520

540

560

580

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

Base Budget Under Full Sequester Base Budget Under Mini-Deal (CS est)

FY'14 FYDP (no Sequester)

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8

HD channel penetration % Ultra HD channel penetration %

Source: CS US Aerospace & Defence Research Team (US

Aerospace & Defense 2014 Outlook, dated 19 December 2013)

Source: Source: Company data, Credit Suisse estimates NOTE: Year

1=2005 for HD and Year 1=2013 for Ultra HD

Figure 6: Average selling prices of 4K televisions (NPD

DisplaySearch data published in The Wall Street Journal) US$, unless otherwise stated

Figure 7: HD vs. Ultra HD channel penetration from launch %

$7,851

$4,503

$18,667

$1,120 $973$1,986

$0

$4,000

$8,000

$12,000

$16,000

$20,000

World-wide China North America

2012 Estimate 2014

Source: NPD DisplaySearch, The Wall Street Journal Source: IHS

07 F

eb

ruary

201

4

Glo

ba

l Sate

llite

4

Global satellite industry trading multiples Figure 8: Global satellite industry trading multiples Local currency

Source: Company data, Credit Suisse estimates

07 February 2014

Global Satellite 5

Summary of global satellite stock views Global satellite industry revenue outlook to improve over 2014

2013 proved a very challenging year for the industry with downward revenue pressure

from: 1) US DoD spending cuts; 2) launch delays (funding issues/failures), and 3)

Africa/Middle East oversupply. As a result, over 2013, most global operators rebased

2014-16 revenue guidance.

Despite this, we expect US budgetary pressure to ease over 2014 while we continue to

expect overall global capacity demand to exceed global supply from 2015. Below, we

summarise the individual stock views of the global satellite stocks in the Credit Suisse

coverage universe.

■ Inmarsat—(Outperform, TP 800p). We reiterate our Outperform on Inmarsat and

target price of 800p as we continue to forecast strong growth for the company boosted

from 2015 by Global Xpress. Despite the continued positive growth, we are cutting

2014-17E EBITDA forecasts by 5-7% to reflect; 1) higher GX set-up costs than

previously forecast; and 2) the sale of Inmarsat's Retail Energy operations to Rignet.

■ Intelsat—(Neutral, TP $25). We reiterate our Neutral rating and $25 target price on

Intelsat. We are not changing our forecasts as we had already factored in continued

pressure in the government and point-to-point channel business. We are broadly in line

with consensus revenue and EBITDA forecasts for 2013-2015E.

■ SES—(Outperform, TP €27). We reiterate our Outperform and €27 price target on

SES. In this report, we make only minor adjustments to our forecasts for SES. We are

broadly in line with consensus in the short term, but we are ahead in 2015, reiterating

our view that in the longer term, supply of satellite capacity will be exceeded by

demand.

We, and consensus, are below SES guidance (3-4% revenue growth in 2013 and 4.5%

revenue CAGR for 2012-2014), which we believe could be revised downwards due to

further launch delays; however, consensus is already below guidance and, to a large

extent, already factoring this into estimates. We remain optimistic in the mid-term for

SES and see headwinds from satellite delays only affecting short-term numbers.

■ Eutelsat—(Neutral, TP €23). We reinstate coverage of Eutelsat with a Neutral rating

and a target price of €23 per share. We see Eutelsat as the most exposed FSS

operator to both US DoD spend and oversupply in Africa and we prefer SES among

the FSS Satellite operators. We are below consensus for Eutelsat for the first time in

over two years.

In our view, Eutelsat does not have the required satellite capacity to sustain high single

digit revenue growth over the next six months. In July 2013, Eutelsat cut its guidance

for revenue growth to above 2.5% in FY June 14 and above 5-6% for the two years

ahead. This reflected; 1) uncertainty from US DoD budget cuts which impact multi-

usage revenues, and 2) lack of available capacity to sustain high growth in video and

data applications.

■ NewSat (Outperform, TP A$0.74). NewSat is an Australian Teleport operator

supplying secure satellite data and communications services to government,

enterprise and telecoms customers in remote locations, primarily around Australia,

PNG and Timor Leste. Services are delivered via NWT's two Australian teleports

(Adelaide and Perth) which uplink to 13 third-party geostationary satellites. We have

upgraded EBITDA FY15E to FY17E by 3% to 8% to predominantly reflect a lower

assumed long term AUD:USD (0.85 from 0.90). Our FY14 Teleport forecasts decline

to reflect weaker Teleport sales over the past 12 months.

07 February 2014

Global Satellite 6

Global Satellite—Industry trends for 2014 In this report, we discuss the main global satellite trends that we believe will shape the

industry over 2014 and over the next 5-10 years.

1. US Defence budget cuts—over the worst

On 9 December 2013, an agreement to raise military and domestic spending over the next

two years from sequestered levels (previously in law in the United States) was reached.

We believe this agreement will ease pressure on the satellite industry caused by the effect

of US Defense budget cuts over 2013.

We summarise the potential US Defense budget (in data sourced from our US Aerospace

and Defense research team) progression in Figure 9 under three different scenarios:

■ with no sequester;

■ with the full sequester; and

■ under the recently agreed 'mini-deal'.

In conclusion, under the 'mini-deal' agreed by Congress, US Defence spending will now

increase in 2014 relative to 2013 compared with a decline of around $20bn that would

have occurred under the sequester. Our US Aerospace and Defense research team

expects the 2014 US Defence budget to rise to $486bn from $482bn in 2013, compared

with a 2014 budget of $464bn under the sequester, see Figure 9.

Figure 9: US Defence budget under agreed mini-deal will see spend rising in 2014

460

480

500

520

540

560

580

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

Base Budget Under Full Sequester Base Budget Under Mini-Deal (CS est)

FY'14 FYDP (no Sequester)

Source: Credit Suisse estimates (Credit Suisse US Aerospace & Defence research team research report—

US Aerospace & Defense 2014 Outlook, dated 19 December 2013)

We note that after the agreed two-year deal, our US Aerospace and Defense research

team prudently assumes the 2016 Defence budget returns to sequester levels.

In our April 2013 satellite report (Growing risk from US DoD budget cuts, dated 19 April

2013), we discussed the impact from US DoD cuts for the industry. At that time, we cut

demand forecasts in our model to reflect lower demand for military satellite capacity, which

resulted in downward revisions to our estimates for both Eutelsat and SES.

Previous impacts from US DoD on our covered companies

US Defence spending cuts have impacted the satellite stocks by varying degrees over the

past 12 months, as we summarise below:

07 February 2014

Global Satellite 7

■ Eutelsat (estimated 9% of revenues from global government services): Typically

has two windows for contract renewals with the US DoD each year—one in

February/March and the other in September/October. After the February/March 2013

renewal ,Eutelsat stated that its 6-7% three-year revenue guidance (FYJun12-

Jun15E) could be negatively impacted by “up to 1pp” implying a cut to around 5-

6%. Eutelsat stated the September/October 2013 renewal was more in line with its

own expectations with 90% of the contracts with the US DoD successfully

renegotiated as part of this campaign, compared with only 80% in the February/March

2013 renewal.

■ SES (estimated 12% of revenues from global government/military services): US

government revenues increased year on year for SES in Q313 with SES now

expecting flat yoy US government/military revenue for FY13 as a whole. SES believes

demand for satellite capacity from US governmental agencies other than US DoD will

grow over the next 2-3 years. The recent decision by the US Air Force to extend its

hosted payload (on SES-2) missile warning mission is another datapoint suggesting to

us that pressure from US DoD budget cuts could ease over 2014.

Intelsat (19% of revenues from government services): Intelsat recently reduced its

2013 revenue guidance partly due to a worsening in its near-term outlook for

government revenues. RFP issuance and awards remains slower than usual and

customers continue to consolidate existing capacity. We forecast a 4% decline in

government revenues over 2014 (small improvement from -7% in 2013) and make no

changes to our Intelsat revenue forecasts in this report.

■ Inmarsat (estimated 30-35% of revenues from global government services).

Inmarsat continues to see pressure in its US government retail unit (part of its low

margin Inmarsat Solutions division) as a result of "on-going spending controls" and

added that it "continues to expect a reduction in contracting opportunities as further

programmes are cancelled, de-scoped or delayed". Inmarsat Solutions profitability did

not deteriorate further in Q313 although we believe Q3 was boosted by short-term

government contracts that are potentially not sustainable in the longer term. Despite

this, Inmarsat continues to see little impact on its higher-margin MSS traffic business

from US DoD demand but remains cautious going into 2014.

US DoD also moving towards longer-term contracts and more hosted payloads

Commercial satellite service providers (including Eutelsat, Intelsat and SES) have been

working closely with the US DoD to improve provisioning practises for some time. The

budget cuts over 2013 have added urgency to these efforts. In December 2013, we

observed further evidence the US DoD was increasing its co-operation with commercial

satellite operators in order to achieve this.

The FY 2014 National Defense Authorization Act, signed into law by President Obama on

27 December 2013, requires the US DoD to provide Congress briefings on strategies for

multi-year procurements of commercial satellite services within 90 days from the passing

and signature of the bill. As a result, we believe the US DoD could move towards signing

longer-term contracts rather than the typical current one-year contracts (with options to

extend year by year). Furthermore, the US DoD has been prompted by Congress to

analyse hosted payload opportunities.

Longer-term contracts and hosted payloads have previously been promoted by the

commercial satellite service providers. Intelsat has welcomed the move by the US

government in a public statement. We agree the move by the US government is positive

for both parties, buying satellite capacity in the spot market on year-by-year contracts are

generally the most expensive. So buying on longer-term contracts could potentially reduce

the cost per capacity for the US DoD while at the same time offering more visibility and

planning potential for the commercial satellite service providers.

07 February 2014

Global Satellite 8

While the potential change in procurement practice from the US DoD might not have a

material impact on 2014, we do believe it can have medium-term positive impacts on

respective commercial satellite operators which supply government business.

Conclusion—Pressure from US DoD cuts to ease over 2014 and 2015

In conclusion, we see the agreement to raise US defence spending in 2014 as part of the

'mini-deal' and the US government moving towards more efficient procurement methods

as creating less pressure in 2014 than we saw in 2013. With the US DoD budget also

slated to rise slightly in 2015 and 2016, we expect the negative impact observed over

2013 will not be repeated over 2014-2016.

2. 4k (Ultra-HD) to offset compression ratio technology

Over the past 12-18 months, we have seen demand expectations for 3DTV among

broadcasters and satellite operators fall to very low levels as 3DTV demand so far has

been lacklustre, due to the need for glasses to watch 3DTV and the cost of filming TV

content in 3D. At the SATELLITE2013® conference in March 2013, the focus for next

generation DTH viewing had shifted much more towards 4k (or Ultra High-Definition).

What is 4k?

4k is a much higher resolution TV picture than HDTV that requires higher bandwidth to

transmit. There are two future evolutions of Ultra HDTV currently under development:

■ 4k with a 3840x2160 (8.3 megapixels) resolution; and

■ 8k 7680x4320 (33.2 megapixels) resolution,

4k and 8k represent a doubling and quadrupling of the resolution of standard HDTV,

1920x1080 (2.1 megapixels).

Over the next 10 years, we are likely to see the launch of many 4k channels (driven

initially by Sports and Movies as was the case with HD, in our view) with 4k TV sets

already on sale in the US, Asia and Western Europe. Over the next 10-20 years,

incremental demand will be boosted by a further move to 8k. With higher resolution, the

required transmission bandwidth will rise. For example, transmitting 4k in HEVC

compression, it will be possible to host only two channels per transponder (36MHz)

compared with the current 5-7 HDTV channels per transponder (using MPEG-4 encoding)

or 10-20 SD channels per transponder. We set out the comparable channels per

transponder by format and compression type in Figure 10.

Figure 10:Channels per transponders falling for the last decades

Source: Eutelsat

07 February 2014

Global Satellite 9

4k to become mass market within five years

At SATELLITE2013®, FSS operators had differing views on when the industry will

generate meaningful revenues from 4k. Eutelsat believes the 2016 Olympics will see sales

of more affordable 4k TV sets increase and, therefore, provide the first major catalyst for

broadcasters to begin broadcasting in 4k.

SES was a little more optimistic, suggesting we could see 4k channels offered by 2015

and adding that adoption of 4k could be faster than the move from SD to HD as

consumers were already aware of the quality improvements achieved with higher definition

transmissions and could be quicker to buy 4k TV sets and more willing to pay a premium

for 4k content.

Intelsat stated it only expects material revenue from Ultra HD in around five years and that

in emerging markets, demand for HD would continue to grow. With the Football World Cup

in 2014 and the Olympic Games in 2016, there is scope for broadcasters to begin

transmitting mass market sports events in 4k or at least trialling the technology, in our view.

Cost of 4k TV sets to fall materially over 2014-15

The cost of 4K televisions is expected to fall materially over 2014-15. According to a

recent article in The Wall Street Journal (which sourced data from NPD DisplaySearch)

the price of 4K TV sets is expected to fall materially over the next few years, see Figure

11.

Ultra HD content now being created

Netflix recently announced plans to stream the second season of "The House of Cards" in

4k, starting in 2014 while Amazon has also indicated that it will invest in TV programming

in 2014 to be filmed in the 4k format. Comcast and Samsung recently announced a

partnership to deliver 4k content to Samsung TV sets in 2014. The content will be

available via the internet and users will be able to stream. Telcos are also anticipating this

move. BT announced plans to start trialling 4K this year through its fibre network.

However, this would have to be in small scale as it would require significant investment to

mass-market this content. Ironically, we view this as positive for the satellite industry as

OTT could boost demand for 4k content, requiring satellite broadcasters (e.g. BSkyB in the

UK) to move more quickly to transmit in 4k.

Figure 11: Average selling prices of 4k televisions to drop significantly over 2014

according to NPD DisplaySearch data published in The Wall Street Journal

$7,851

$4,503

$18,667

$1,120 $973$1,986

$0

$4,000

$8,000

$12,000

$16,000

$20,000

World-wide China North America

2012 Estimate 2014

Source: NPD DisplaySearch, The Wall Street Journal

07 February 2014

Global Satellite 10

4k TV set availability remains low. Sony (Figure 12) and Samsung have launched 4k sets,

but prices are still high (Sony’s 55” Ultra HD set retails for $3,000) although already

cheaper than the initially launch price of $5,000 and expected to fall materially over the

next two years as discussed above.

Figure 12: Sony 4k sets already available

Source: Sony website

According to data from the IHS, from 2015-16, an acceleration in Ultra HD growth is

expected, as TV sets become more affordable and subscribers start engaging with

UHDTV content (Figure 13). Europe and North America are likely to become early

adopters.

Figure 13: Estimated Ultra HD TV Household penetration by region (2012-2025)

Source: IHS

Our forecasts for Ultra HD adoption growth are substantially below those seen in HD take-

up (Figure 14), in terms of penetration of total channels, when it was first launched.

07 February 2014

Global Satellite 11

Figure 14: HD vs. Ultra HD channel growth to year 8 from launch (Extended Europe)

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8

HD channel penetration % Ultra HD channel penetration %

Source: Company data, Credit Suisse estimates, NOTE: Year 1=2005 for HD and Year 1=2013 for Ultra HD

We forecast 80 4k channels by the end of 2015 in Extended Europe (Figure 15), growing

to 190 by the end of 2017E. From the launch of HD in the late 1990s/early 2000s, the

number of HDTV channels grew to 548 in 2010 within the same time, and had reached

797 channels by the end of 2011. The adoption rate of 4k could, in our view, be faster than

the roll-out of HD once we have had a broader launch in 2015-16 given:

■ Customers are now more used to paying for higher resolution programming due to the

HD experience which could speed up the adoption among consumers of 4k—this in

turn should further drive the amount of content produced in 4k.

■ The replacement cycle of TV sets is now around six years, considerably shorter than

the ~10-year replacement cycle when HD was launched in the early 2000s—as a

result, we believe the move to adopting 4k TV sets could be faster than the move from

SD sets to HD sets.

HD channel growth to continue in Extended Europe

The continued development of higher resolution video supports greater demand for

satellite capacity, in our view. We expect the total number of HD channels to continue to

increase at an average annual rate of 20% for the next three years in Extended Europe.

Longer term, we believe 4k will become an increasingly material driver of demand for DTH

TV capacity. Furthermore, we believe the growing demand for higher resolution channels

will offset pressure on satellite capacity from improved compression technologies. As

shown in Figure 10, compression ratios have steadily improved over the past few years,

with each improvement allowing a greater number of channels per transponder to be

broadcast. We note that excess capacity has been redirected towards HD programming.

Conclusion—We expect 200 4k channels in Extended Europe by 2018E

We do not expect 4k channel demand to materially impact our Extended Europe demand

model until 2016 but 4k channel growth will accelerate over time. Our forecasts for 4k

channels in Extended Europe are shown below in Figure 15. SES estimated there would

be ~200 4k channels globally by 2020 at its recent investor day vs. the 420 4k channels in

Extended Europe only.

07 February 2014

Global Satellite 12

Figure 15: Credit Suisse estimates for HD and Ultra HD TV channels in Extended Europe

Extended Europe HD and Ultra HD

TV channels forecast

2012* 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

HD channels extended Europe 1,184 1,480 1,806 2,167 2,600 3,120 3,682 4,344 5,039

growth y/y 48.6% 25.0% 22.0% 20.0% 20.0% 20.0% 18.0% 18.0% 16.0%

Ultra HD (4k) 0 5 35 80 120 190 200 300 420

growth y/y 600.0% 128.6% 50.0% 58.3% 5.3% 50.0% 40.0%

Source: Company data, Credit Suisse estimates. *Credit Suisse research assumptions, based on Eutelsat and SES published information

3. Shutdown of SD channels to partially offset 4k

The downside of new technologies such as HDTV and 4k is that the number of SD

channels likely reduces over time. When a new technology is launched, content is typically

broadcast over both SD and HD but, as more viewing shifts to the higher resolution

content, the need to also show this content in SD reduces over time and, potentially, is

switched off. We have seen evidence of this happening in Germany with the switch-off of

the analogue satellite signal taking €108m out of SES revenues in 2012.

With HDTV potentially becoming the new standard over time, the need to continue

broadcasting the same content in both HD and SD reduces. Over 2013-14, we do not see

a material risk of SD channels being shut down in Western Europe with SES stating that

freed up SD capacity is being quickly redeployed to improve the picture quality of other,

more popular, SD channels (e.g. the popular terrestrial channels in the UK broadcast by

BSkyB).

We believe a shutdown of the SD channels will be less negative than the shutdown of the

analogue signal as, for analogue TV, one transponder could only provide 1-2 channels

while you can fit 10-20 SD channels (depending on compression) on one transponder and

the new technology demands more transponder capacity per channel.

We forecast SDTV channel growth in Extended Europe to continue to slow from an

estimated 2.5% in 2012 to just 1% in 2015E. We still expect low growth in the overall

number of SDTV channels given that, although we should see a decline in Western

Europe, SD channel growth should continue in less developed TV markets such as Africa,

the Middle East and CEE, where HDTV set penetration is still very low compared with

Western Europe.

Please see our detailed Extended Europe TV model later in this report for our detailed TV

channel forecasts.

4. Oversupply in Africa and Middle East regions to

continue

Oversupply of satellite capacity in Africa and the Middle East regions was highlighted by

several operators over 2012-13 as one of the main headwinds to growth over this period.

Both Eutelsat and Intelsat recently stated that this was still a drag on growth in their

respective Q113 and Q313 results. In our view, SES is less affected by this trend as it has

been relatively successful in partially offsetting overcapacity with new contracts gained in

other regions. There is hope among industry players that this oversupply is only temporary

but, with so much capacity set to be launched by national governments over 2014-15

(particularly in Africa), this means that we have little visibility on when this oversupply will

end and pricing can stabilise. As set out in Figure 16, Eutelsat remains substantially more

exposed to North Africa and Middle East.

07 February 2014

Global Satellite 13

Figure 16: Extended Europe overview

Regions pops Internet users as %

of total pops

TV market Key TV platforms ETL

exposure*

SES

exposure*

Europe 500m 74% ~60% pay-tv penetration in

W Europe and 70% TV set

penetration of homes in CEE

Sky UK, Sky Italy, Sky

Germany, Cyfra+ (Poland),

UPC, Tring (Croatia)

86.8% 64.7%

Central Asia (incl Russia) 210m 50% ~35% pay-TV penetration Tricolor (Russia), Digiturk

(Turkey), Viasat Ukraine

30.0% 29.4%

Middle East & North Africa 600m 29% in Arab States,

13% in Africa

56% of TV households watch

FTA DTH signals

Al Jazeera, OSN, Multichoice

Africa

90.0% 26.5%

Sub Saharan Africa 900m 13% in Africa ~20% TV penetration Multichoice Africa 20.0% 17.6%

Source: Company data, Credit Suisse estimates, *Note ETL and SES exposure is defined as % of satellites covering the region. The total is

>100% as a satellite can cover more than 1 region

Governments worldwide launching their own satellite programs

According to recent press reports, many governments in Africa and other developing

satellite nations are opting to build and operator their own satellites which could further

increase oversupply in these regions:

■ On 30 October, Bloomberg announced that the Angolan government had announced

a $300m project for a Russian-built satellite scheduled for 2017, as part of new

investment plans to improve telecommunications in the country and diversify away

from oil. The article also mentioned that Angola was looking to add fibre-optic cable to

increase mobile-phone coverage in the country;

■ The Nigerian government launched the NigComSat 1R satellite in 2011 and has two

additional satellites (NigComSat 2 and 3) scheduled for launch in 2014 and 2015 to

support the country with cheaper connectivity;

■ The Congostar 1 satellite, scheduled for launch in 2015, is another example of an

African government (Congo) ordering its own satellite. The satellite is to be launched

with a Chinese launch vehicle and aimed at the 60E orbital slot;

■ The Belarus government has ordered a satellite, scheduled for launch in 2015,

Belintersat 1 to be positioned at the 51.5E orbital slot and we expect mainly to support

the country with connectivity in rural areas. The satellite is to be launched by a

Chinese rocket, and we believe the Chinese could also have helped with the financing

of the satellite;

■ The Laos government has also recently announced a new satellite (Laosat 1,

128.5E) to be launched with a Chinese rocket. In line with other announced

government satellite programmes, we believe the Laosat 1 satellite is mainly aimed at

increasing connectivity in the country; and

■ The Tupak Katari Sat 1 satellite ordered by the Bolivian government is yet another

example of government satellites launched with a Chinese launch vehicle.

LatAm growth, however, remains strong

SES-6 was launched in June 2013. SES intends to tap satellite demand in Latin America,

having signed a major multi-year transponder capacity agreement for the majority of the

Ku-band capacity available on SES-6 with Oi, a major Brazilian telecom operator. With this

contract, SES has secured a partnership with a growing operator in the DTH TV in Brazil,

which was previously supplied with capacity from Hispasat, where Eutelsat owns a

minority stake of 33.6%.

This contract, along with a series of other contracts in Asia and Africa, has allowed SES to

partially offset the revenue risk from slowing growth in the African region. Eutelsat has

acquired Satmex to achieve scale in the Latam region. Satmex generated US$112m in

FSS revenues in 2012, 31% of which were from Latam/Caribbean (ex-Mexico) and 37%

from Mexico although Satmex does not currently supply capacity to Brazil. Eutelsat's

capacity in Latam will increase further with the expected launch of Satmex-9 in 2015 and

with Eutelsat 65WestA, the latter planned for launch in 2016.

07 February 2014

Global Satellite 14

Conclusion—Africa and Middle East oversupply the key industry negative for 2014-

16 and beyond

We expect oversupply in Africa and the Middle East to remain the key headwind for global

industry revenues over the next three years. With several governments launching new

capacity, it is unclear currently 1) how quickly demand will soak up the current oversupply;

and 2) whether government satellite launches reduce the need for commercial capacity

demand. As set out in Figure 16, Eutelsat remains substantially more exposed to North

Africa and the Middle East.

5. High-Throughput constellations to drive accelerating data demand

Figure 17: Overview of High-Throughput (HTS) Global satellite constellations currently planned

Operator Constellation Launch date Frequency band Satellites Coverage Services

Inmarsat GX Successful 1st launch

in December 2013.

Global by end 2014

KA GEO 90% of Earth Mainly data

O3b O3b early 2014 Ka-band spot beam MEO Equator +/- 45 degrees latitude Data

Intelsat EPIC first launch in H2 15 Ku-band spot beam GEO Initially the Americas Mainly data

Iridium NEXT early 2015 L-band/Ka-Band LEO Global Data


Intelsat EPIC

Intelsat's participation in the HTS business is the EPIC constellation with the first EPIC

satellite, Intelsat 29e, scheduled for launch in 2015 for the 50 degrees West orbital slot.

The EPIC platform is both FSS and MSS, making it more of a competitor to Inmarsat.

The EPIC constellation differs from Inmarsat's Global Express constellation in that it is Ku

spot beams rather than Ka band spot beams which is also the case with the O3b satellite

constellation. The Ku band spectrum is lower frequency than Ka band making it less

sensitive to rain fade. However, the two platforms offer broadly the same type of services.

Furthermore, Intelsat will not offer global coverage with the EPIC constellation, at least not

initially. With the Intelsat 29e satellite it will mainly cover the Americas. Coverage will

materially increase with the scheduled launch of Intelsat 33e in 2016 (60E) – see Figure

19 for more detail on EPIC coverage. Under a contract with Boeing for a total of four

satellites (includes the Intelsat 33e) Intelsat has ordered an additional three EPIC

satellites, of which 1 will be launched each year, and gradually increasing footprint,

according to press articles.

Although the launch of the first EPIC satellite is still more than a year away, Intelsat has

already started to sell capacity and has announced that a few anchor customers have

signed up, giving a total backlog of $500m of revenues (around $50m per year, 20% of

annual revenues). We set out the announced key contracts signed below Figure 18.

Figure 18: Intelsat Epic key contracts

Customer Term Throughput (Gbps) Capacity Region Sector

Harris CapRock 10 1.2 500MHz Gulf of Mexico, CONUS*, Offshore Brazil Energy

Panasonic Avionics 10 1.0 600MHz North Atlantic Aeronautical

MTN 10 2.0 750MHz Caribbean Cruise

Source: Company data

07 February 2014

Global Satellite 15

Figure 19: Intelsat EPIC coverage

Source: Intelsat

O3b Networks

In June 2013, O3b Networks ("Other 3 billion" of the world's population without access to

terrestrial broadband), 47% owned by SES, launched the first four of a constellation of

eight satellites planned for 2013. After the successful launch in June, O3b announced on 9

September that two of its satellites in orbit exhibited power anomalies on their payloads

and, as a result, the company decided to postpone the launch of the second four satellites,

initially planned for 30 September 2013. It now expects them to be launched early in 2014,

delaying the positive contribution to come through to SES to late 2015.

O3b wants to tap three main areas of opportunities, overlapping with Inmarsat in most of

its services and increasing competition in the MSS space.

■ Government: During 2013, O3b signed agreements with several local authorities and

operators to provide broadband connectivity to rural areas in e.g. Malaysia, Peru,

Liberia, and Somalia. O3b is focused on providing connectivity via its high throughput

services to mobile platforms including aircraft and drones for military use.

■ Energy: O3b is also entering the energy space where, similar to Inmarsat, it intends to

provide coverage for offshore platforms, offering high speed broadband services for

tripulation uses and data management

■ Maritime: Maritime has been a focus for O3b, signing high profile contracts with Royal

Caribbean and Carnival during 2013 to provide broadband connectivity to their cruises,

increasing customer satisfaction.

07 February 2014

Global Satellite 16

Figure 20: O3b Networks coverage map—within 45 degrees of latitude North and South of equator

Source: O3b coverage map

Figure 21: Recent contracts announced by O3b networks

Date Partner Geography Activity

Nov-13 Somtel Somalia O3b Trunk

Sep-13 Palau National communications Palau broadband

Jul-13 RCS Communications South Sudan broadband

Jun-13 Maju nusa Malaysia 3G Mobile

Mar-13 ISP provider Democratic Republic Congo broadband

Mar-13 Interactive E Pakistan mobile backhaul and trunking

Mar-13 West Africa Telecoms Liberia O3b Trunk

Jan-13 American Samoa broadband

Jan-13 Royal Caribbean Global Cruise Ship broadband


O3b Networks intends to provide broadband connectivity to areas where the reach of

terrestrial infrastructure is limited. The company identified a potential 3bn people that

unable to receive good broadband connectivity at high speeds because of inexistent

infrastructure.

Inmarsat—GX programme to gather momentum over 2014

Global Xpress is a constellation of three high-speed high-frequency Ka-band satellites

costing over US$1.2bn over 2010-14. This represents a significant opportunity to generate

incremental revenue in the Maritime segment but also opens up a substantial opportunity

for Inmarsat to generate incremental Land, Aviation and Global defence revenue. We

expect Inmarsat's Global Xpress programme to gather momentum over 2014 following the

successful launch of the first GX satellite. Inmarsat announced in early December that it

had successfully launched its first GX (Global Xpress) satellite, which represents a major

milestone in Inmarsat’s plan to deploy its next generation constellation (consisting of three

satellites in total). The next two GX satellites are set to launch in 2014 to enable global GX

coverage heading into 2015. The first GX launch has significant importance given:

■ It will allow Inmarsat to showcase the GX constellation to potential end customers,

some of whom will want to see the product before committing;

■ The launch is the first important step in having GX global coverage by end 2014, well

before Inmarsat’s competitors have anything similar; and

07 February 2014

Global Satellite 17

■ The Proton launch vehicle has suffered an unusually high number of launch failures

over the past two years.

Conclusion—New HTS constellations to accelerate high-speed data demand

In conclusion, we expect the emergence of several High Throughput Satellite

constellations (HTS) to accelerate demand for high-speed data over satellites. Just as in

the terrestrial (wireline and mobile) world of developed markets, we expect demand for

high-speed data to accelerate in the global satellite industry.

6. Terrestrial Fibre and mobile build-out not a near-term threat

Looking into the cost structure of Sky UK, Sky Deutschland and Pro7, costs for satellite

transmission are less than 5% of the total opex base for all operators (Figure 22).

Figure 22: Satellite transmission <5% of total cost base

0%

1%

2%

3%

4%

5%

6%

SkyD BSkyB Pro7

Source: Company data, Credit Suisse research

In our view, this should protect the satellite operators to some extent as there are relatively

few costs to save from switching from satellite transmission to a terrestrial fibre alternative.

Furthermore our view remains that DTH broadcasters are unlikely to switch satellite

providers due to the prohibitive cost of realigning several million satellite dishes.

Figure 23: Fibre customers as % of retail customer base

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

1Q 12 2Q 12 3Q 12 4Q 12 1Q 13 2Q 13 Q313

BT Retail FTTC DT FTTC TEF FTTH PT FTTH

KPN FTTH Orange FTTH Teliasonera Fibre Talk Talk Fibre


Near term, we are not seeing Over-The-Top TV (OTT TV) or a wider fibre roll-out as a high

risk to the FSS operators for DTH video distribution or feeding fibre/cable head-ends. With

satellite transmission such a small part of broadcasters’ cost base (<1% for Pro7 on our

estimates), materially less than content costs, we believe broadcasters, at least in the near

07 February 2014

Global Satellite 18

to medium term, will continue to use satellites as back-up to fibre. To sustain our view, we

also show in Figure 23 the evolution of fibre penetration on operators' retail customer base

where growth is relatively flat in some cases.

Figure 24: US TV subscriber base

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

TV

sub

scrib

ers

('000

)

Cable TV subs DBS/DTH (satellite) Telco TV subs


This view was further supported by comments from US broadcasters such as HBO, PBS

and Disney at the Satellite 2012 conference in Washington in March 2013; they did not

expect to reduce the amount of satellite capacity leased in the medium term as satellite is

still the most cost-effective way of reaching out to the mass market (point to multipoint).

Furthermore, the broadcasters pointed out that with distribution being such a small cost in

relation to content, they will continue to use satellite as a back-up even when fibre

becomes more accessible. In Figure 24 we set out the TV subscriber numbers for Cable

TV, DBS (Direct Broadcast Satellite) and Telcos. The US market is far more developed

than Europe with regards to both fibre roll-out by incumbents and adoption of OTT TV.

However, Figure 24 shows that satellite has continued to gain subscribers, despite more

competition from fibre and OTT TV.

We believe TV is more protected against pressure on pricing than data services,

especially in the larger DTH markets such as Germany and the UK, for the following

reasons:

■ The cost for a DTH operator with a material subscriber base to switch operator is

substantial. To change satellite operator, the DTH platform would also need to realign

all of its customer satellite dishes to a different orbital slot. We believe the cost of

sending out a technician to realign a satellite dish would be around €200 per

household and, taking Sky UK, as an example, with a subscriber base >10m, the cost

would be >GBP1.6bn, around 180% of Sky UK’s annual cost base and close to 14x

the annual satellite transmission cost. We do not rule out that tracking antennas,

which could automatically realign themselves to a different orbital slot, may be

available at some stage; however, at present, there is still a considerable cost to

realign.

■ There is currently a lack of satellite capacity on the most attractive orbital slots

covering Western Europe (SES’s 19.2E orbital slot and Eutelsat’s 13E orbital slot). To

remain competitive, DTH providers need to be able to add new channels to their

bundles and follow new technology developments. Content quality seems to have

become increasingly important; this is particularly highlighted in Germany where

satellite recently gained some market share on better HD content (partly through

HD+).

07 February 2014

Global Satellite 19

7. Global satellite industry consolidation to continue

Over the past 12-24 months, we have seen an increase in consolidation activity. Given the

FSS industry is characterised by substantial economies of scale and the presence of

several smaller government-owned satellites adding pressure on the low end data

services market (generally a market for smaller niche players), we believe there is further

room for consolidation in the global satellite industry with subscale players potentially

looking to exit.

Below, we highlight the four satellite operators that were up for sale in 2013, according to

widespread press reports, and we show the two announced deals. However, in our view,

there could potentially be several more smaller satellite operators that could be up for sale

at some stage, such as Hispasat and Optus (owned by Singtel and up for sale earlier in

2013).

Space Com (Amos)

Most recently, according to Digital TV News, Amos (owned by Spacecom of Israel), could

be up for sale as the company filed with the Tel Aviv Stock Exchange to explore the

possibility of a merger or acquisition. Amos has been named as one of the more

aggressive operators putting pressure on pricing in both CEE and Africa. Israeli press

suggests the controlling shareholder Eurocom group (also owns Bezeq), is looking for 2bn

shekel (around $700m) for Space Com, vs. current market cap of around $1bn and

implying around 17x 2012 EV/EBITDA (Space Com had 1.4bn shekel of net debt at the

end of 2012).

Figure 25: Amos Space Com satellite fleet and upcoming launches

Existing satellites: Orbital slot Services Ku Ka C Region Launched

Amos-2 4W DTH, Cable, Data 22x36MHz US, ME, Europe 2003

Amos-3 4W DTH, Cable, Data 26x36MHz 2x450MHz US, ME, Europe 2008

Amos-4 65E DTH, Cable, Data 8x108MHz 4x216MHz SE and C Asia, ME, Africa 2012

Amos-5 17E DTH, Cable, Data 18x72MHz 14x72MHz, 4x36MHz Africa, ME and Europe Dec-11

Upcoming launches

Amos-6 4W N/A 2015

Amos-7 40W N/A 2014


Measat

Reuters reported in March 2012 that Arabsat was in talks with Ananda Krishnan, the

owner of the Malaysian satellite operator Measat, to acquire a stake in Measat but that the

negotiations had stalled over differences in valuation. Krishnan is Malaysia's second

richest man (according to Reuters). Arabsat went on to acquire the Greek satellite

operator Hellas Sat in early 2013.

07 February 2014

Global Satellite 20

Figure 26: Measat satellite fleet and upcoming launches

Existing satellites: Orbital slot Services Ku Ka C Region Launched

Measat-3 91.5E 59 45 Malaysia, Indonesia, South Asia End 2006

Measat-3a 91.5E 59 42 Asia, Australia, ME, East Africa 2009

Measat 5 (Payload on

Thaicom 4)

119.5E Aug-05

Measat 2 (inclined orbit) 148E Asia Pacific and Hawaii

Africasat-1 (inclined orbit) 46E Europe and Africa

Africasat-1a/Azerspace-1 46E Feb-13

Upcoming launches

Measat 2a 148E Ku/C-band Asia Pacific and Hawaii 2014E

Measat 3b 91.5E Ku-band Malaysia, Indonesia, S Asia and Australia 2014E

Africasat 2a 6E 2014E

Measat 3b 91.5E 2014E

Measat 3c (payload on

Jabiru-1)

88E 2015E


Telesat

While much larger than the aforementioned assets, the Canadian satellite operator Telesat

is another asset that could be up for sale according to a press article from Reuters on 22

January, which noted that the main shareholders of Telesat, Loral Space &

Communications (62.8% stake) and Canada's Public Sector Pension Investment Board

(PSP) (35.3% stake) had evaluated their options to either IPO or sell Telesat in 2010-2011

but retained their stakes. Telesat could potentially be up for sale at some stage, in our

view.

Figure 27: Telesat satellite fleet and upcoming launches

Existing satellites: Orbital slot Services Ku Ka C X Region Launched

Anik F1 107.3W broadcasting, data 42 36 North America Nov-00

Anik F1R 107.3W broadcasting, data 32 24 North America Sep-05

Anik F2 111.1W broadcasting, data 32 38 24 North America Jul-04

Anik F3 118.7W broadcasting, data 32 2 24 North America Apr-07

Nimiq 1 91W DTH and broadcast 32 North America May-99

Nimiq 2 91W DTH and broadcast 32 2 North America Dec-02

Nimiq 4 82W DTH and broadcast 32 8 North America Sep-08

Nimiq 5 72.7W DTH and broadcast 32 North America Sep-09

Nimiq 6 91W DTH and broadcast May-12

Telstar 11N 37.5W satellite TV transmission 39 Asia, Europe, the Middle East and the Americas Feb-09

Telstar 12 15W satellite TV transmission 38 Asia, Europe, the Middle East and the Americas Oct-99

Telstar 14 63W satellite TV transmission 41 Asia, Europe, the Middle East and the Americas Jan-04

Telstar 18 136E satellite TV transmission 16 38 Asia, Europe, the Middle East and the Americas Jun-04

Anik G1 107.3W broadcasting, data 28 0 24 3

Upcoming launches Region Launched

Telstar 12V 15W Data services Late 2015E


Optus

In March 2013, SingTel launched a review of its options including a potential sale of its

Australian satellite operator, Optus. The attempted sale was cancelled in August when

SingTel announced released a statement saying it is committed to growing and investing

in the satellite business. During the review, the press reported there were several parties

interested in Optus and also discussed a price in excess of $2bn.

07 February 2014

Global Satellite 21

Figure 28: Optus satellite fleet and upcoming launches

Existing satellites: Orbital slot Services Ku Ka C L Region Launched

Optus B3 (inclined orbit) 164E 22.5 1 Australia, New Zealand 1994

Optus C1 156E Commercial and military 32 Australia, New Zealand, E Asia, Hawaii 2003

Optus D1 160E DTH and data 36 Australia and New Zealand Oct-06

Optus D2 152E DTH and data 36 Australia and New Zealand Oct-07

Optus D3 156E Media 36 Australia and New Zealand Aug-09

Upcoming launches

Optus D10 166E 2014E

Source: Company data, *Note: Transponders are 36MHz equivalent

Avanti acquires frequencies at 21.5E

It was made announced in December 2013 that Avanti had acquired frequencies on the

21.5E orbital slot. These frequencies are said to have another year or two until they reach

end of life. According to an article in Advanced Television in October 2013, these

frequencies were valued at close to $100m but were potentially given to Avanti for free

although this was not confirmed. Avanti owns three satellites: Artemis, Hylas-1 and 2.

Eutelsat acquisition of Satmex

Eutelsat's acquisition of Satmex increases its presence in the region. The Mexican satellite

operator currently is present in Mexico and in Southern America, with the exception of

Brazil. Eutelsat's capacity in Latam will increase further with the launch of Satmex-9 in

1Q14 and with Eutelsat 65WestA, the latter planned for launch in 2016. With these two

launches, the company plans to tap the Brazilian market, expanding its presence in Latam.

The above satellite operators are only a few of the potential acquisition targets. We believe

all three of the listed FSS operators (Eutelsat, Intelsat and SES) could be interested in

consolidating the industry. However, with Eutelsat still working on closing the Mexsat

acquisition, the appetite for larger acquisitions could be limited. Eutelsat and SES are less

leveraged at (2-3.5x Net debt/EBITDA) than Intelsat at close to 7x, increasing the potential

for larger deals. However, Intelsat has said on recent investor calls it does not rule out

participating in consolidation as long as deals are FCF accretive. Going into 2014, we

expect continued press comments on potential consolidation in the sector.

8. Satellite launch delays remain an 'industry hazard'

Satellite launch delays and the reliability of launch vehicles remain major concerns for the

satellite industry. Our covered companies have been negatively affected by satellite delays

over the last 12 months, which led us to downgrade our estimates for SES and Inmarsat.

The impact of these events varied among different companies and is outlined below:

Eutelsat

Recent delays for Eutelsat include the two satellites in partnership with RSCC, AT-1 and

AT-2. These two satellites were initially scheduled for 4Q13 and are now scheduled to be

launched in March 2014 bringing additional 27 new transponders for DTH broadcasting in

Russia. 16 of these 27 transponders were pre-sold, contributing to the order backlog.

07 February 2014

Global Satellite 22

Figure 29: Eutelsat satellite launch schedule

Expected Date Satellite Orbital slot Services provided Additional Transponders

Q1 2014 Express-AT1 56E DTH Broadcast and broadband in Russia 27

Q1 2014 Express-AT2 140E DTH Broadcast and broadband in Russia

H1 2014 Eutelsat 3B 3E DTH Broadcast and data 30 Ku-band, 9 Ka- band, 12 C-band

Q1 2015 Eutelsat 9B 9E DTH Europe and MENA 60 Ku-band

Q3 2015 Eutelsat 8 West

B

8W DTH MENA 40 Ku-band, 10 C-band

H2 2015 Eutelsat 36C 36E DTH and Broadband in Russia and Sub-Saharan

Africa

70 Ku/Ka bands

H1 2016 Eutelsat 65 West

A

65W Video, Data, broadband in Latam 58 C/Ku/Ka bands


The impact from these two satellites is reflected in our estimates for Video and

Applications revenues, which will bring additional growth in H2 FY June 14 and the year

after, but, as a result of launch delays, will negatively impact revenues in the next two

quarters. The changes to our estimates are detailed in Eutelsat company section of this

report.

SES

Over 2013, SES was impacted by satellite launch delays. As of 2012 year-end, SES

planned to launch four satellites in 2013.

Initially, SES-6 was planned to be launched in 1Q13. By year-end 2012, it was re-

scheduled for 2Q13. It was finally launched on 3 June 2013 and is already fully

operational. During 1Q13, Astra 2E was re-scheduled to 3Q13, as well SES-8 and Astra-

5B with these two then further rescheduled to 4Q13. SES-8 was launched earlier in

December, and Astra 5B is not expected to go up until 1Q14.

When we last reviewed SES, in our 3Q13 results preview, published on 16 October, 2013,

we changed our forecasts incorporating the impact of these new satellite delays. Given the

more encouraging recent sequence of successful launches, and a slightly less exposure to

satellite launches for 2014, we now make only minor adjustments to our forecasts for SES,

as we are slightly more optimistic regarding upcoming launches. These changes are

discussed further in this report in the SES company section.

Figure 30: SES satellite launch schedule

Expected Date Satellite Orbital slot Services provided Additional Transponders

Q1 2014 ASTRA 2G 28.2E Broadcast and data to Europe, ME, Africa +10

Q1 2014 ASTRA 5B 31.5E TV for Eastern Europe and L-band payload for EGNOS +21

H1 2015 SES-9 108.2E DTH broadcasting in Northeast Asia, South Asia and

Indonesia, maritime for Vessels in the Indian Ocean

53

2016-2018 1-3 Satellites N.A. Asia and Latin America N.A.


Intelsat

We do not see the recent delays having any material impact on Intelsat. Intelsat's next

satellite launch is not until the end of 2014 when the Intelsat 30 satellite is scheduled for

launch, and the launch has already been contracted with Arianespace. The indirect impact

from the Proton launch failures is an increase in insurance premiums, however, the

satellite insurance companies have stated that insurance premiums are more impacted by

the launch history of a specific launch vehicle; therefore, we see little risk of impact on

Intelsat on launch insurance premium.

07 February 2014

Global Satellite 23

Figure 31: Intelsat satellite launch schedule

Launch schedule Orbital location Coverage Scheduled

launch

Application Comment Launch vehicle

Intelsat 30 95W Americas Q314 DTH Fully leased by

DirecTV

Arianespace

Intelsat 31R 95W Americas Q315 DTH Fully leased by

DirecTV

Arianespace

Intelsat 34 (27R) 304.5E (55.5W) Americas 2015 Media services To replace IS-805 Arianespace

Intelsat 29e 310E Americas 2015 Broadband Arianespace

Intelsat 33e Asia, Europe, Africa 2016 Broadband Arianespace


Inmarsat—1st

GX satellite successfully launched

Inmarsat announced in early December that it had successfully launched its first GX

(Global Xpress) satellite. The successful launch of the first GX satellite represents a major

milestone in Inmarsat’s plan to deploy its next generation constellation (consisting of three

satellites in total). Inmarsat is expected to launch the second and third GX satellites over

2015 on the Proton launch vehicle.

Conclusion—Further satellite launch delays inevitable but impact on industry

growth minimal

In conclusion, we see satellite launch delays as unavoidable in the industry although small

delays do not impact medium-term growth. Launch failures are much more serious (and

cause delays while investigated) but remain statistically uncommon.

07 February 2014

Global Satellite 24

FSS supply/demand model—Extended Europe In our last review of the satellite sector in April 2013, we looked at supply and demand for

satellite capacity in Extended Europe, Eutelsat's main geographic region. We concluded

that demand would exceed supply by 2015 (Figure 37), and this was our main argument

for remaining optimistic on the satellite industry.

In this report, we update our model to reflect recent developments, not only in the

Extended Europe footprint, but also on a global footprint, to have a better coverage of

Intelsat and Newsat's footprints. Our models include new satellite launches, launch delays

and an update to our detailed demand model. We believe Extended Europe is also very

relevant for SES as we expect the majority of SES growth over the next three years to be

driven by satellite demand in this region and in Latam.

How we construct our FSS supply/demand model for Extended Europe

Our FSS supply/demand model focuses on the Extended Europe region (Europe,

CIS/Central Asia, MENA and Sub-Saharan Africa as set out in Figure 33) as it is Eutelsat’s

main footprint and the footprint where much of SES’s incremental capacity will be directed

over the next three years. SES also has a large exposure to North America (22% of

revenues) but as the North American market is increasingly saturated and SES is reducing,

not increasing, its exposure by not replacing satellites when they reach end-of-life, we

continue to focus on the Extended Europe footprint for our detailed analysis.

Figure 32: World map with longitude lines

Source: www.Satsig.net

Figure 33: Extended Europe overview

Regions pops Internet users as %

of total pops

TV market Key TV platforms ETL

exposure*

SES

exposure*

Europe 500m 74% ~60% pay-tv penetration in

W Europe and 70% TV set

penetration of homes in CEE

Sky UK, Sky Italy, Sky

Germany, Cyfra+ (Poland),

UPC, Tring (Croatia)

86.8% 64.7%

Central Asia (incl Russia) 210m 50% ~35% pay-TV penetration Tricolor (Russia), Digiturk

(Turkey), Viasat Ukraine

30.0% 29.4%

Middle East & North Africa 600m 29% in Arab States,

13% in Africa

56% of TV households watch

FTA DTH signals

Al Jazeera, OSN, Multichoice

Africa

90.0% 26.5%

Sub Saharan Africa 900m 13% in Africa ~20% TV penetration Multichoice Africa 20.0% 17.6%

Source: Company data, Credit Suisse research, *Note ETL and SES exposure is defined as % of satellites covering the region. The total is

>100% as a satellite can cover more than 1 region

Demand to exceed supply by 2015 in Extended Europe

After updating our Extended Europe supply/demand model, we still see demand for FSS

capacity to exceed supply from 2015 (Figure 34 and Figure 37). We show below a detailed

explanation for our changes in Video and Data demand forecasts, and for the changes we

made in our supply model. Figure 34 provides a snapshot of the mismatch between

incremental capacity supplied and demanded, after our model updates:

07 February 2014

Global Satellite 25

Figure 34: Changes to Credit Suisse transponder demand and supply model

# of transponders 2013E New 2013E Old Change 2014E New 2014E Old Change 2015E New 2015E Old Change

Video 121 114 7 112 126 -14 112 132 -20

Voice and data 181 181 0 166 166 0 188 188 0

Incremental transponder

demand

302 294 8 278 292 -14 300 320 -20

Incremental transponder

supply

224 368 -144 520 395 125 270 284 -14

Source: Credit Suisse estimates

Video and data applications—only small changes to

forecasts

In this report, we update our estimates for DTH TV market channels in Extended Europe

and capacity required. We have slightly revised up our estimates for HD in 2013 and

adjusted the number of 4k channels per transponder from 2 to 3, balancing faster take-up

of 4k with improved compression ratios.

Upside risk for 4k forecast

There is upside risks to our estimates for 4k channel growth which could be quicker than

what we forecast. As mentioned earlier in this report, Figure 14 shows HD vs. 4k

penetration since year 1 of launching. The figures shows a much higher take-up for HD

channels than for 4k. At a time when consumers have already experienced the image

improvements brought by HDTV, 4k could potentially take-off quicker.

Figure 35: Credit Suisse DTH TV channel and transponder model for Extended Europe (number of channels)

Video market forecast 2012 2013E 2014E 2015E 2016E 2017E

HD channels 1,184 1,480 1,806 2,167 2,600 3,120

growth y/y 48.6% 25.0% 22.0% 20.0% 20.0% 20.0%

Ultra HD (4k) 0 5 35 80 120 190

growth y/y 600.0% 128.6% 50.0% 58.3%

3D Channels 27 45 60 70 75 79

growth y/y 80.0% 66.7% 33.3% 16.7% 7.1% 5.0%

SD Channels 10,433 10,694 10,908 11,017 11,072 11,072

growth y/y 2.8% 2.5% 2.0% 1.0% 0.5% 0.0%

TV Channels 11,644 12,224 12,808 13,334 13,867 14,461

Growth 6.0% 5.0% 4.8% 4.1% 4.0% 4.3%

As % of total

HD channels 10.2% 12.1% 14.1% 16.2% 18.7% 21.6%

Ultra HD channels 0.0% 0.0% 0.3% 0.6% 0.9% 1.3%

3D channels 0.2% 0.4% 0.5% 0.5% 0.5% 0.5%

SD channels 89.6% 87.5% 85.2% 82.6% 79.8% 76.6%

Transponder demand Ch/trpx

Trpx for HD 4 296 370 451 542 650 780

Trpx for Ultra HD 3 0 2 12 27 40 63

Trpx for 3D 3 9 15 20 23 25 26

Trpx for SD 12 869 891 909 918 923 923

Transponder demand 1,174 1,278 1,392 1,510 1,638 1,792

growth 9.2% 8.8% 8.9% 8.5% 8.5% 9.4%


07 February 2014

Global Satellite 26

Downside risk for 4k forecast

The main risks to our view on 4k take-up relate to; 1) the considerable amount of capex

requirements for telcos to upgrade SEBs to be compatible with HEVC standouts, and 2)

compression ratios might improve at a quicker rate than 4k take-up, leading to a gap

between capacity supplied and demand. We outline below in Figure 35, our estimates for

DTH TV in Extended Europe:

No changes in demand from use of UAV and Corporate networks

Lastly, we reiterate our forecasts for military and corporate network demand for satellite

capacity, after downward revisions in April last year.

Figure 36: Credit Suisse forecasts for transponders used in drones and corporate networks

2012 2013E 2014E 2015E 2016E 2017E

VSAT sites EE ('000) 723 810 891 962 1,020 1,071

Growth 13% 12% 10% 8% 6% 5%

Trpx used in Corporate Networks 723 810 891 962 1,020 1,071

2. UAV forecast

US 679 706 734 756 779 803

France 23 24 27 31 34 38

Germany 9 14 19 31 46 61

Italy 5 8 14 20 26 32

Turkey 28 29 34 39 44 49

UK 5 13 28 43 58 73

Russia 30 45 60 75 90 105

China 50 90 160 220 270 320

India 38 46 52 60 66 73

Israel 26 31 36 41 46 51

Other 10 20 30 40 55 70

Total 903 1,026 1,194 1,356 1,514 1,674

growth y/y 19.2% 13.7% 16.4% 13.6% 11.7% 10.5%

Assumed Utilisation rate 60% 55% 50% 48% 48% 47%

Drones in use 542 568 596 657 720 785

Transponders/utilised drone 1.5 1.6 1.6 1.7 1.7 1.8

growth y/y 5.0% 4.0% 3.0% 2.0% 2.0%

Transponders needed globally 813 894 977 1,108 1,240 1,378

growth y/y 13% 10% 9% 13% 12% 11%

incremental transponders needed 93 82 82 131 132 138

o.w. Extended Europe 80% 80% 80% 80% 80% 80%

incremental transponders needed 75 65 66 105 105 111

4. Summary

Drones 650 716 781 886 992 1,102

growth yoy 13.0% 10.1% 9.2% 13.4% 11.9% 11.1%

Corporate networks (VSAT) 723 810 891 962 1020 1071

growth yoy 13.0% 12.0% 10.0% 8.0% 6.0% 5.0%

Other data 354 383 402 414 426 439

growth yoy 10% 8% 5% 3% 3% 3%

Total data transponders 1,728 1,908 2,074 2,262 2,438 2,612

growth yoy 12.4% 10.4% 8.7% 9.1% 7.8% 7.2%

Incremental transponders for data 190 181 166 188 176 174


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Figure 37: Extended Europe Transponder demand vs. supply (Jan 2014) Figure 38: Extended Europe Transponder demand vs. supply (April 2013)

0

100

200

300

400

500

600

2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E

trpx

(36

MH

z eq

uiva

lent

)


0

50

100

150

200

250

300

350

400

450

500

2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E

trpx

(36

MH

z eq

uiv

alen

t)


Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Figure 39: Incremental Extended Europe Transponder supply (January 2014

vs. April 2013) # of transponders *

Figure 40: Incremental Extended Europe Transponder demand (January 2014

vs. April 2013) # of transponders *

0

100

200

300

400

500

600

2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E

Supply model (Jan-2014) Supply model (Apr-2013)

0

50

100

150

200

250

300

350

400

450

500

2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E

Demand model (Jan-2014) Demand model (Apr-2013)

Source: Company data, Credit Suisse estimates Note 2012 data changed slightly given more

accurate historical data.

Source: Company data, Credit Suisse estimates Note 2012 data changed slightly given more

accurate historical data.

07 February 2014

Global Satellite 28

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Supply—2013-15 update for new launches and delays

We update our forecasts for supply and demand for FSS transponders in Extended

Europe, to consider whether pricing will remain benign.

We have made adjustments to our Extended Europe transponder supply model to reflect

(1) recently announced new satellite launches, and (2) announced delays over the past six

months. We set out new launches and delays in detail below and summarise launches by

major global operator over the 2013-15 in Appendix 2.

Figure 41: Summary of Credit Suisse transponder (36MHz equivalent) demand model

2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E

Video 1,331 1,412 1,495 1,595 1,698 1,812 1,930 2,058 2,213

growth y/y 3.4% 6.1% 5.9% 6.6% 6.5% 6.7% 6.5% 6.6% 7.5%

Net Ads 44 81 83 99 103 114 118 128 155

Voice and data 1,121 1,315 1,537 1,728 1,904 2,075 2,255 2,447 2,615

growth y/y 8.8% 17.3% 16.9% 12.4% 10.2% 9.0% 8.6% 8.5% 6.9%

Net Ads 91 194 222 190 176 171 179 192 168

Utilised transponders 2,452 2,727 3,033 3,322 3,602 3,888 4,185 4,505 4,827

growth y/y 5.8% 11.2% 11.2% 9.5% 8.4% 7.9% 7.6% 7.6% 7.2%

incremental demand 135 275 305 290 280 286 297 320 322

Voice and Data Split 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E

UAVs 415 495 575 650 711 782 879 1,001 1,105

growth y/y 10.7% 19.3% 16.2% 13.0% 9.4% 10.0% 12.3% 13.9% 10.4%

Net ads 40 80 80 75 61 71 96 122 104

Corporate networks 480 540 640 723 810 891 962 1,020 1,071

growth y/y 4.3% 12.5% 18.5% 13.0% 12.0% 10.0% 8.0% 6.0% 5.0%

Net ads 20 60 100 83 87 81 71 58 51

other data 226 280 322 354 383 402 414 426 439


We break down Voice&Data demand into three sub-categories: Corporate networks

(VSAT), UAVs and other demand. In the definition of corporate networks, we include

connection for remote offices, connection of oil rigs, consumer satellite broadband and

Maritime VSAT connections to yachts. In other data services, we include mainly IP-

trunking and cellular backhauling.

07 February 2014

Global Satellite 29

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Global demand and supply model We set out a summary of and changes to our global satellite transponder demand and

supply model in Figure 42 to Figure 45.

Our global forecasts looks broadly similar in trends to our forecasts for Extended Europe

with a peak in incremental satellite transponder supply in 2014 but with incremental

demand catching up again in 2015-2016.

Since we first published the demand and supply model in May 2013, the outlook for global

satellites has worsened slightly and we have made the following key changes to our model

to reflect this:

Supply – launches pushed out and new satellites (mainly government) announced

■ We have noted more than 12 satellite launch delays from 2013 into 2014. Some of

these are due to the launch issues with the Proton rocket (as discussed earlier in this

note) pushing out some new satellite launches into 2014. We further believe some of

the satellites may have been pushed out due to financing issues and various other

reasons such as delays in manufacturing. We have also noticed several launch delays

from 2014 to 2015.

■ There are also several new satellites announced for launch, of which many belong to

governments such as Belarus, Laos, Congo and Bulgaria.

Demand—slower uptake of Ultra HD

■ We have reduced our forecasts for Ultra HD in 2018E from 500 to 280. We are taking

a more conservative approach, partly to bring our forecasts more in line with our

Extended Europe forecasts. We now forecast 550 Ultra HD TV channels globally by

the end of 2020E versus 420 in Extended Europe. The majority of the difference is to

be made up by the North American market.

■ We have also reduced our forecasts for incremental demand coming from other data

services, mainly point-to-point services. The pressure on this segment mainly for

Intelsat has led us to become more conservative than six months ago.

07 February 2014

Global Satellite 30

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Figure 42: Global Incremental Transponder demand vs. supply (Nov - 2013) Figure 43: Global Incremental Transponder demand vs. supply (May 2013)

0

100

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300

400

500

600

700

800

2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

C-

and

Ku-b

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rs


0

100

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400

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800

2010 2011 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

C-

and

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-ban

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6M

z tr

ansp

on

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rs



Figure 44: Incremental Global Transponder supply (Nov 2013 vs. May 2013) #

of transponders

Figure 45: Incremental Global Transponder demand (Nov 2013 vs. May 2012)

# of transponders

0

100

200

300

400

500

600

700

800

2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

C-

and K

u-b

and 3

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ransponders

Incremental supply (Nov - 13) Incremental supply (May - 13)

0

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2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

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and K

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ransponders

Incremental demand (Nov - 13) Incremental demand (May - 13)


07 February 2014

Global Satellite 31

Satellite operators' exposure to key global industry themes In this section, we evaluate the relative exposure of the global satellite operators to the

eight key themes impacting the industry over 2014, summarising the exposure in Figure

44 and also setting out Credit Suisse estimates of the proportion of revenues derived from

different end user categories of satellite capacity.

Around 60% of global satellite revenues from DTH TV

As we set out in Figure 44, we estimate around 60% of global commercial satellite

operator revenue is derived from DTH TV with a further 10% from global government and

military and the remaining 30% from connectivity in areas of the world with little or no

terrestrial coverage (including Maritime, Aeronautical and VSAT).

Positive trends

As discussed earlier in this report, we see four positive trends currently impacting global

satellites:

■ Less pressure on US Defence spend;

■ 4k broadcasting becoming a reality over the next five years;

■ The launch of high-throughput satellites driving accelerating demand for high-speed

broadband services over satellite (including Inmarsat's GX and Intelsat's EPIC

constellations); and

■ Potential future industry consolidation.

Negative trends

Offsetting the positive trends outlined above, we highlight four negative trends:

■ SD channel shutdown;

■ Oversupply in Africa and the Middle East regions;

■ Continued growth in terrestrial fibre and mobile coverage; and

■ Potential satellite launch delays.

Conclusion on stocks

In Figure 46, we set out our view of the relative exposure to these trends of the satellite

operators under our global coverage in order to determine an overall net exposure. In

conclusion, we see SES, Inmarsat and NewSat as having overall net positive exposure

while we see Eutelsat and Intelsat as having a more balanced revenue growth outlook.

This conclusion is key to driving our relative ratings of the global satellite stocks.

We reiterate our Outperform ratings on SES, Inmarsat and NewSat while reiterating our

Neutral rating on Intelsat. We reinstate coverage on Eutelsat with a Neutral rating

consistent with our relative exposure table.

In the following pages, we give a more detailed view of the global satellite stocks including

changes to our forecasts.

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Figure 46: Satellite operator exposure to key themes

Satellite operator exposure to key themes

Revenue breakdown Type Global Industry SES Eutelsat Intelsat Inmarsat**** NewSat******

DTH TV DTH ~60% ~70% ~70% ~12% - 22%

US DoD/government combined US Gov ~8% ~10% ~7% ~18% ~25-30% 12%

of which US DoD ~5% ~5% ~7% - n/a

of which US Government ~3% ~5% - - n/a

Other global military/government Other Gov ~2% ~2% ~2% ~1% ~5% 14%

Video, data and voices services L-band/VSAT ~25% ~18% ~20% ~69% ~65% 52%

Positives SES Eutelsat Intelsat Inmarsat NewSat

1. US Defence budget pressure to ease US Gov High High Medium High/Medium* Low/Medium

2. 4k (Ultra-HD) demand DTH High High High Low Low

5. High Throughput Satellites (accelerating data demand) VSAT Medium Medium Medium High High

7. Global Satellite industry consolidation All Medium Medium Medium Low High

Overall revenue-weighted exposure to +ve industry trends High High Medium High Medium

Negatives

3. Shutdown of SD channels DTH High High Medium Low Low

4. Oversupply in key regions to continue** DTH/L-band/VSAT Medium High High Medium Medium

6. Terrestrial Fibre and Mobile build-out DTH/L-band/VSAT Medium Medium Medium Low Low

8. Satellite launch delays*** All Low Low Low High***** Medium

Overall revenue-weighted exposure to -ve industry trends Medium High Medium Medium Low

Overall weighted exposure to Global industry trends Positive Neutral Neutral Positive Positive

Source: Credit Suisse research

Notes

* Inmarsat has seen incremental pressure from US DoD in its Solutions business over 2013 but limited incremental pressure on its airtime businesss

** Oversupply mainly impacting Africa and Middle East regions, where Eutelsat has more capacity

*** Exposure to satellite launch delays is related to launch vehicles. Obviously an operator's own satellite loss is a substantial negative

**** Estimated % of MSS revenue

***** Proton launch delay specific

***** NewSat revenue mix reflects singed contracts + sales pipeline for Jabiru-1. Current Teleports revenue not a material driver of valuation. Source: Credit Suisse research

07 February 2014

Global Satellite 33

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07 February 2014

Global Satellite 34

Americas / United States

Wireless Telecommunication Services

Intelsat S.A. (I)

Reiterate Neutral rating and TP $25

■ Event: We maintain our Neutral rating and $25 target price. There are no

changes to our forecasts, as we had already factored in continued pressure

in the government and point-to-point channel business. Our estimates are

broadly in line with consensus revenue and EBITDA forecasts for 2013-

2015E.

■ Little near-term upside potential: With little new incremental capacity until

the next satellite launch in H2 14 (I 30) to drive revenue growth, limited room

for cash flow improvement from debt refinancing and continued pressure on

the government business (although slightly improving) we see limited upside

potential for Intelsat's share price in the near term.

■ Longer-term trends still look attractive: Longer term, we believe demand

in the satellite industry remains solid. Although the outlook for demand

supply balance on a global level has worsened slightly, we believe Intelsat's

management has made strategic decisions that position it to take advantage

of some of the most interesting growth pockets in the industry, such as

LatAm (through the Intelsat 30 and Intelsat 31 satellites) and high throughput

satellite demand (through the Epic constellation). On the back of incremental

capacity in higher demand areas contributing to revenues from the end of

2014E, we forecast revenue to return to growth in 2014 (by 0.5%)

accelerating to around 4% in 2016 and 2017 with EBITDA margins slightly

expanding to 52% and 53% respectively from 48% in 2013E.

■ Catalysts: Intelsat will report Q4 13 and full year 2013 in February

■ Valuation: Intelsat is trading at 8.6x 2014E EV/EBITDA.

Share price performance

19

21

23

25

Apr-13 Jul-13 Oct-13 Jan-14

Daily Apr 18, 2013 - Feb 04, 2014, 4/18/13 = US$19.25

Price Indexed S&P 500 INDEX

On 02/04/14 the S&P 500 INDEX closed at 1755.2

Quarterly EPS Q1 Q2 Q3 Q4 2012A -0.08 -0.60 -0.16 0.03 2013E 0.00 -3.46 0.86 -0.18 2014E — — — —

Financial and valuation metrics

Year 12/12A 12/13E 12/14E 12/15E EPS (CS adj.) (US$) -0.81 -2.27 2.89 3.29 Prev. EPS (US$) — — — — P/E (x) -24.0 -8.6 6.7 5.9 P/E rel. (%) -136.7 -51.6 44.6 43.4 Revenue (US$ m) 2,610.2 2,604.8 2,617.9 2,650.2 EBITDA (US$ m) 2,016.2 2,017.9 2,026.5 2,035.6 OCFPS (US$) 8.22 6.06 9.76 9.43 P/OCF (x) — 3.2 2.0 2.1 EV/EBITDA (current) 8.6 8.6 8.6 8.5 Net debt (US$ m) 15,717 15,037 14,571 14,326 ROIC (%) 6.99 10.50 8.47 8.52

Number of shares (m) 105.41 IC (current, US$ m) 14,404.62 BV/share (Next Qtr., US$) — EV/IC (x) — Net debt (Next Qtr., US$ m) — Dividend (current, US$) — Net debt/tot cap (Next Qtr., %) — Dividend yield (%) —

Source: Company data, Credit Suisse estimates.

Rating NEUTRAL* [V] Price (04 Feb 14, US$) 19.46 Target price (US$) 25.00¹ 52-week price range 25.15 - 19.01 Market cap. (US$ m) 2,051.31 Enterprise value (US$ m) 17,347.01

*Stock ratings are relative to the coverage universe in each

analyst's or each team's respective sector.

¹Target price is for 12 months.

[V] = Stock considered volatile (see Disclosure Appendix).

Research Analysts

Joseph Mastrogiovanni

212 325 3757

[email protected]

Henrik Herbst

212 325 3149

[email protected]

Michael Baresich

212 325-3766

[email protected]

07 February 2014

Global Satellite 35

Figure 47: Intelsat: Credit Suisse versus consensus forecasts $ in millions, unless otherwise stated

2013E 2014E 2015E

CSe Consensus CSe vs. Cons CSe Consensus CSe vs. Cons CSe Consensus CSe vs. Cons

Revenues 2,605 2,603 0.1% 2,618 2,606 0.5% 2,650 2638 0.5%

adj EBITDA 2,018 1,999 0.9% 2,027 2,019 0.4% 2,036 2023 0.6%

EBIT 1,261 1,203 4.8% 1,297 1,316 -1.4% 1,312 1319 -0.5%

NI (266) (278) 338 301 385 338

CAPEX (inc cap int) 657 647 1.5% 616 626 -1.6% 809 803 0.7%

Source: Company data, Credit Suisse estimates, Consensus forecasts sourced from Factset

Figure 48: Intelsat: Credit Suisse forecasts versus company guidance $ in millions, unless otherwise stated

2013E 2014E 2015E

CSe Guidance CSe Guidance CSe Guidance

Revenues 2,605 2,602

Margins vs. 2012 0.0 flat

CAPEX (inc cap int) 657 $600-675m 616 $575-650m 809 $775-850m

Customer prepayments 115 $100-125m 90 $75-100m 44 $25-50m


Figure 49: Intelsat: P&L forecast $ in millions, unless otherwise stated

Income Statement –

Normalised

2011 2012 1Q13 2Q13 3Q13 4Q13E 2013E 2014E 2015E

Revenues 2,588 2,610 655 654 652 644 2,605 2,618 2,650

memo: Change y / y 1.7% 0.8% 1.7% 2.4% -0.5% -4.2% -0.2% 0.5% 1.2%

Direct costs of revenue 408 411 98 98 94 97 386 385 403

SG&A 184 179 52 51 52 53 208 206 211

Depreciation 769 765 187 187 186 190 751 729 724

Operating expenses 1,361 1,355 337 336 331 340 1,344 1,321 1,338

Operating Income 1,227 1,256 318 318 321 304 1,261 1,297 1,312

memo: Margin 47% 48% 49% 49% 49% 47% 48% 50% 49%

memo: Change y / y 6% 2% 3% 4% 0% -5% 0% 3% 1%

Other Items 20 (4) 0 5 2 0 7 0 0

Adjusted EBITDA 2,017 2,016 506 509 508 494 2,018 2,027 2,036

memo: Margin 78% 77% 77% 78% 78% 77% 77% 77% 77%

memo: Change y / y 1% 0% 2% 4% -1% -4% 0% 0% 0%

Interest expense, net 1,311 1,271 318 302 249 247 1,116 922 887

Other income (expenses) (349) (84) (1) (370) (0) 0 (371) 0 0

Loss before income taxes (432) (99) (1) (354) 71 57 (227) 375 425

Provision for (benefit from)

income taxes

(55) (20) (2) (9) (30) 78 36 37 40

Net loss (377) (79) 1 (345) 101 (21) (263) 338 385

Net income attributable to

non-controlling interest

1 (2) (1) (1) (1) 0 (3) 0 0

Net profit/(loss) attributable

to Intelsat S.A.

(376) (81) 0 (346) 100 (21) (266) 338 385

No. of Shares 5.000 5.000 99.900 99.900 117.064 117.064 117.064 117.064 117.064

EPS (75.17) (16.18) 0.00 (3.46) 0.86 (0.18) (2.27) 2.89 3.29

memo: Change y / y 44% -78% -100% 377% -127% -126% -86% -227% 14%


07 February 2014

Global Satellite 36

Figure 50: Intelsat: Cash flow and leverage forecasts $ in millions, unless otherwise stated

Cash Flow 2011 2012 1Q13 2Q13 3Q13 4Q13E 2013E 2014E 2015E

Net loss (435) (149) (7) (407) 89 (17) (342) 338 385

Cash flows from operating activities:

Depreciation and amortization 769 765 187 187 186 190 751 729 724

Impairment of asset value 0 0 0 0 0 0 0 0 0

Deferred income taxes (73) (62) (4) (3) (32) 34 (5) (5) (20)

Amortization of discount, premium, issuance costs

and other non-cash items

63 57 15 19 6 15 55 45 45

Net gain (loss) attributable to noncontrolling interest 0 0 0 0 0 0 0 0 0

Other non-cash items 338 100 10 374 22 (7) 400 25 10

Changes in operating assets and liabilities 254 110 (104) (108) 207 (140) (144) 10 (40)

Net cash provided by operating activities 916 821 97 63 478 76 714 1,142 1,104

Cash flows from investing activities:

Payments for satellites and other property and

equipment (including capitalized interest)

(845) (866) (167) (169) (144) (176) (657) (616) (809)

Other investing activities 4 82 233 235 (1) 0 467 0 0

Net cash used in investing activities (840) (784) 66 66 (145) (176) (190) (616) (809)

Cash flows from financing activities:

Increase/(decrease in debt) (215) (25) (20) (502) (20) (156) (698) (536) (233)

Equity Financing Activities 2 (9) (2) 570 (3) 0 566 0 0

Other financing activities (265) (106) 2 (428) (1) 26 (400) (60) (50)

Net cash used in financing activities (479) (140) (20) (359) (23) (130) (532) (596) (283)

Effect of exchange rate changes on cash and cash

equivalents/ others

1 (7) (1) (3) (0) (1) (5) 0 0

Net change in cash and cash equivalents (402) (109) 141 (233) 309 (231) (14) (70) 12

Free Cash Flow Metrics

FCF Calculation

Cash from operating activities 916 821 97 63 478 76 714 1,142 1,104

Capital expenditures (incl capitalized interest) (845) (866) (167) (169) (144) (176) (657) (616) (809)

FCF used in operations 71 (45) (70) (106) 333 (100) 57 526 295

memo: Change y / y 97.3% -162.8% -49.6% -344.2% -646.3% -190.1% -227.3% 824.2% -44.0%

Net Debt

Total debt 16,003 15,904 15,891 15,408 15,387 15,206 15,206 14,669 14,436

- Cash & equivalents 297 187 329 96 404 174 174 103 115

= Net debt 15,707 15,717 15,562 15,312 14,982 15,032 15,032 14,566 14,321

/ LTM Adj. EBITDA 2,017 2,016 2,025 2,043 2,040 2,018 2,018 2,027 2,036

= Net debt / EBITDA 7.8x 7.8x 7.7x 7.5x 7.3x 7.4x 7.4x 7.2x 7.0x


07 February 2014

Global Satellite 37


07 February 2014

Global Satellite 38

Europe / United Kingdom


Inmarsat PLC (ISA.L)

Global VSAT market expected to be worth

$3bn by 2020

■ We reiterate our Outperform on Inmarsat and target price of 800p as we

continue to forecast a strong growth outlook for the company boosted by

Global Xpress from 2015. Despite the continued positive growth outlook, we

are cutting 2014-17 EBITDA forecasts by 5-7% to reflect 1) higher GX set-up

costs than previously forecast; and 2) the sale of Inmarsat's Retail Energy

operations to Rignet.

■ Global Xpress to gather momentum after first launch success. The first

GX launch has significant importance given 1) It will allow Inmarsat to

showcase the GX constellation to potential end customers, some of whom

will want to see the product before committing; 2) The launch is the first

important step in having GX global coverage by end 2014, well before

Inmarsat’s competitors have anything similar; and 3) The Proton launch

vehicle has suffered an unusually high number of launch failures over the

past two years.

■ The Global Satellite Broadband (VSAT) market, according to Comsys,

was worth around US$1.9bn in 2010 at the wholesale level (only the

satellite traffic portion) which excludes any retail mark-up, equipment sales

and value-added services. On our estimates, we believe the VSAT

wholesale market will be worth around $3bn by 2020E. We keep our

Inmarsat Global Xpress wholesale revenue estimates unchanged at $360m

in 2019E (Inmarsat’s current guidance is $500m in 2019 or five years after

launch) and $435m in 2020E. This would imply Inmarsat having a 15%

share of the wholesale VSAT market by 2020, six years after the launch of

Global Xpress.

■ Catalysts: Inmarsat will launch two more GX satellites in 2014. The

company will report Q4 results in early March 2014.

■ Valuation: Inmarsat trades on a 2013E PE of ~25x.


390

490

590

690

Feb-12 Jun-12 Oct-12 Feb-13 Jun-13 Oct-13

Price Price relative

The price relative chart measures performance against the

FTSE ALL SHARE INDEX which closed at 3491.81 on

04/02/14

On 04/02/14 the spot exchange rate was £.83/Eu 1. -

Eu .74/US$1

Performance Over 1M 3M 12M Absolute (%) -8.7 -2.9 5.8 Relative (%) -4.8 0.5 0.2


Year 12/12A 12/13E 12/14E 12/15E Revenue (US$ m) 1,337.8 1,240.9 1,154.0 1,206.8 EBITDA (US$ m) 694.40 644.58 620.20 678.77 Pre-tax Profit Adjusted (US$ m) 293.6 276.5 241.8 213.5 CS adj. EPS (US$) 0.42 0.44 0.42 0.37 Prev. EPS (US$) — 0.56 0.52 0.60 ROIC (%) 10.06 8.00 7.69 8.10 P/E (adj., x) 27.14 25.93 27.22 30.83 P/E rel. (%) 210.8 190.0 219.1 270.7 EV/EBITDA 9.5 10.8 11.7 10.6

Dividend (12/13E, c) 46.50 IC (12/13E, US$ m) 2,979.79 Dividend yield (%) 4.1 EV/IC 2.3 Net debt (12/13E, US$ m) 1,865.8 Current WACC 8.6 Net debt/equity (12/13E, %) 167.5 Free float (%) 94.6 BV/share (12/13E, US$) 2.5 Number of shares (m) 448.30

Source: FTI, Company data, Thomson Reuters, Credit Suisse Securities (EUROPE) LTD. Estimates.

Rating OUTPERFORM* Price (04 Feb 14, p) 693.00 Target price (p) 800.00¹ Market cap. (£ m) 3,106.73 Enterprise value (US$ m) 6,937.2




Research Analysts

Paul Sidney

44 20 7888 6015

[email protected]

07 February 2014

Global Satellite 39

Strong Maritime competitive position until 2017

The MSS market (transmission of satellite data and voice to small highly mobile terminals)

is still dominated by key global players Inmarsat, Globalstar and Iridium, plus smaller

regional players (such as Thuraya in Asia). These players typically offer relatively low data

speeds of up to 0.5MBps over L-Band (see Appendix 3) and are currently unable to

provide broadband (for the purposes of this report we define “broadband” as 10MBps+)

capacity. Despite this, Inmarsat’s XpressLink Maritime product is currently taking 40-50%

share of net adds in the high-speed Maritime broadband market, sourcing this broadband

capacity from the high-speed broadband wholesale market.

The MSS players, however, will be launching new satellites over the next 3-4 years which

will allow them to offer broadband speeds over 10Mbps to small mobile terminals.

Inmarsat’s GlobalXpress (GX) constellation, Intelsat’s Epic constellation and, to a lesser

degree in our view, Iridium’s planned NEXT satellite constellation, will likely become more

prominent players in the global provision of broadband satellite capacity over 2014-17.

Iridium NEXT

The launch of Iridium's new satellite constellation (NEXT) has been much anticipated

since it was first announced in 2010. NEXT is both a replacement and an upgrade of

Iridium's current LEO (Low Earth Orbit, 780km above earth) satellite constellation

launched in the late 1990s. Iridium is a direct competitor to Inmarsat with no material

overlap with the FSS operators. Iridium co-operates and bundles some of its services with

FSS VSAT services.

NEXT is planned to be a 66 satellite LEO constellation and the company expects it to

launch over 2015-17. The satellites are manufactured by Thales Alenia Space and the

primary launch vehicle is the SpaceX Falcon launcher.

The NEXT project is expected to cost around $3bn with $1.8bn of the financing secured

through a consortium of banks guaranteed by COFACE (France's export credit facility).

Iridium expects to finance the remaining $1.2bn cost of the project through its operating

cash flow.

Figure 51: Iridium NEXT investment and committed investment vs. undrawn capacity under

the Coface facility $ in millions, unless otherwise stated

0

200

400

600

800

1,000

1,200

1,400

1,600

2011 2012 Q3 13 Residual Q413-2017

us$

'm

Payments made/future commitments NEXT Coface undrawn


The NEXT satellites will utilise L-band spectrum with satellite interlink over Ka-band. The

use of L-band limits the speed that can be offered over the NEXT constellation, in our view,

putting it at a theoretical disadvantage compared with Inmarsat's Global Xpress, O3b and

07 February 2014

Global Satellite 40

Intelsat's EPIC constellations competing for global heavy data customers. However, over

L-band frequencies, the satellite signal is much more resilient against 'rain fade' than both

Ku-band and Ka-band. With its current satellite fleet, Iridium has co-operated with the

FSS/VSAT operators in bundling L-band services with Ku-band and Ka-band. We also see

the Iridium NEXT constellation as a direct competitor to Inmarsat's handheld business.

Iridium has started to sign contracts for its upcoming NEXT satellite constellation with two

anchor customers signed up in, Harris Corp and Aireon. Both of these are hosted payload

deals.

Figure 52: Iridium NEXT hosted payload deals

Customer Service Contract size

Harris Corp Hosted Payload up to $45m over 4 years during construction - service fees on top

Aireon Hosted Payload $200m for the integration+launch, and close to $300m service fees (c.$20m annually)


FSS operators not looking to increase focus on Maritime broadband, in our view

The FSS operators have typically offered broadband capacity using either high-frequency

Ku-Band or Ka-Band capacity, although this has been using mainly spare capacity (not

used for DTH) to add capacity into the wholesale market. A few FSS operators have

added Ka-band capacity recently (e.g. Eutelsat). However, we do not expect the FSS

operators to use new Ka-band capacity to move more aggressively into Maritime

broadband with no FSS operator having good coverage of the Pacific or Atlantic oceans.

In particular, the maritime business so far has been a fairly small business for the FSS

operators and a good way to utilise capacity that cannot be used for DTH TV. The

Maritime VSAT market remains a relatively small market for FSS operators for the

following reasons:

■ No FSS operator is able to offer VSAT on a global basis;

■ FSS coverage concentrated over land masses rather than the oceans;

■ VSAT suffers a deterioration in performance in bad weather due to the relatively high

frequencies at which it operates; and

■ VSAT is typically more expensive.

2014 could see Inmarsat talking to potential US partners for spectrum lease

The December 2012 FCC ruling on DISH’s S-Band spectrum could pave the way for DISH

to use spectrum for mobile broadband services. We believe if DISH were to launch such a

service, it could look to acquire more MSS spectrum, including that owned by

Lightsquared. For the Lightsquared L-Band spectrum to be used for terrestrial use, the

GPS interference issue would still need to be overcome but on a longer-term view we

believe there is an opportunity for Inmarsat to look at new partnerships with US

satellite/telecom operators with a 5-10 year time horizon in order to use satellite spectrum

for terrestrial use. This view was stated by Inmarsat in late 2012. As a reminder Phase 2 of

the original co-operation agreement with Lightsquared stated Inmarsat would receive

$115m per year.

The GX Broadband opportunity

In Figure 57 we set out our model of the Global VSAT market which, according to Comsys,

was worth around US$1.9bn at the wholesale level (only the satellite traffic portion) in

2010, excluding any retail mark-up, equipment sales and value added services. We

estimate the VSAT wholesale market will be worth around $3bn by 2020. We keep our

Inmarsat Global Xpress wholesale revenue estimates unchanged at $360m in 2019E

(Inmarsat’s current guidance is $500m in 2019 or 5 years after launch) and $435m in

2020E. This implies Inmarsat would have a 15% share of the wholesale VSAT market by

2020, six years after the launch of Global Xpress.

07 February 2014

Global Satellite 41

Inmarsat acquires Globe Wireless for $45m

On 17 December 2013, Inmarsat announced the acquisition of Globe Wireless, a leading

provider of value-added maritime communications services to the shipping market.

We view this as a small bolt-on acquisition of a Maritime service provider which services

6,000 ships, which makes strategic sense and boosts Inmarsat's presence in its core

Maritime segment. The $45m acquisition cost is not that material and will be funded out of

available liquidity.

Figure 53: Inmarsat: Q4 2014 active terminal forecasts 000s, unless otherwise stated

2011 Q4 2012 2012 Q3 2013 Q4 2013E 2013E

Maritime 186.9 188.1 188.1 189.5 189.9 189.9

Land 118.3 161.3 161.3 172.4 179.1 179.1

Aviation 13.5 15.4 15.4 16.6 16.8 16.8

Total active terminals 318.7 364.8 364.8 378.5 385.9 385.9


Figure 54: Q413 MSS revenue forecasts US$ in millions, unless otherwise stated

Q4 2012 2012 Q3 2013 Q4 2013E 2013E

Maritime voice 18.7 79.7 17.5 17.6 71.8

Growth -13.6% -11.6% -10.7% -5.9% -9.9%

Maritime data 86.6 331.5 90.1 90.6 359.3

Growth 24.7% 23.3% 5.5% 4.6% 8.4%

Total Maritime 105.3 411.2 107.6 108.2 431.1

Growth 15.6% 14.6% 2.5% 2.7% 4.8%

Land voice 5.1 14.3 5.6 6.0 21.1

Growth 131.3% 85.5% 51.4% 17.8% 47.7%

Land data 26.8 118.1 24.6 25.7 106.7

Growth -16.8% -18.0% -19.6% -4.1% -9.6%

Total Land 31.9 132.4 30.2 31.7 127.8

Growth -7.4% -12.7% -12.0% -0.6% -3.5%

Aviation 27.1 100.8 27.4 27.0 110.3

Growth 11.6% 1.3% 12.8% -0.5% 9.4%

Leasing 20.1 93.6 22.4 20.2 86.0

MSS revenues 184.4 738.0 187.6 187.0 755.1

Growth 3.8% 2.5% 0.5% 1.4% 2.3%


07 February 2014

Global Satellite 42

Figure 55: Inmarsat: Q413 P&L forecasts US$ in millions, unless otherwise stated

Q4 2012 2012 Q3 2013 Q4 2013E 2013E

MSS revenues 184.4 738.0 187.6 187.0 755.1

Other revenue 4.7 14.2 2.8 3.4 12.0

Lightsquared revenue 1.6 60.2 4.8 0.0 9.9

IsatPro terminal sales 5.6 23.5 3.1 4.0 19.6

Global Revenue 196.3 835.9 198.3 194.4 796.6

Growth -18.4% -12.8% -0.1% -1.0% -4.7%

Core revenue (ex-

Lightsquared)

194.7 775.7 193.5 194.4 786.7

Solutions revenues 208 810 188 182 750

Intercompany (77) (308) (80) (78) (306)

One-off revenue in

Solutions

Consolidated revenue 328 1,338 307 294 1,241

Growth -9.4% -5.0% -5.8% -10.3% -7.2%

Consol. revenue (ex-

Lightsquared)

326 1,278 302 294 1,231

Global EBITDA 132 597.3 146.3 133 568.3

Global EBITDA (ex-L2) 131 545.4 142 133 561.6

ISA Solutions EBITDA 19 97.1 22 19 76

One-off +ve EBITDA

Consolidated EBITDA 150 694.4 168.7 146 645

YoY growth -26.0% -18.7% 3.6% -3.0% -7.2%

Consolidated. EBITDA

(ex-L2/Exceptionals)

150 643 164.0 146 638

D&A Group and Other 64 255 60 63 232

Exceptionals (73) 0 (77)

Consolidated EBIT -6 346 35 85 337

Net interest payable (17) (53) (5) (42) (61)

Consolidated PBT -24 294 30.3 43 277

Tax -4 68 15 3 81

Tax credit

Headline tax rate 15.1% 23.0% 49.8% 7.0% 29.3%

Consolidated NI

(Underlying)

-20 226.1 15 40 195.4

-9.2%

Number of shares 448.0 448.0 448.0 448.0 448.0

EPS (US$c) -4.5 50.5 3.4 9.0 43.6

EPS ex-Lightsquared

(US$c)

CAPEX 167 484 128 225 625

IHL CAPEX 455 596

Stratos CAPEX 29 29

Other CAPEX

Dividend (US$c) 27.3 44.3 28.7 46.5

10.0% 5.0%

FCF (132) (8) 55 (192) (140)


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Figure 56: Inmarsat: Changes to forecasts & CS vs. consensus US$ in millions, unless otherwise stated

2013E 2013E 2014E 2014E 2015E 2015E 2016E 2016E 2017E 2017E

New Old Δ (%) New Old Δ (%) New Old Δ (%) New Old Δ (%) New Old Δ (%)

Maritime 431 432 -0.2% 448 451 -0.7% 474 479 -1.0% 493 498 -0.9% 514 519 -0.9%

Land 128 133 -3.7% 129 134 -3.9% 134 138 -3.2% 139 142 -2.6% 143 146 -2.1%

Aeronautical 110 110 0.0% 115 115 0.0% 119 119 0.0% 122 122 0.0% 125 125 0.0%

Leasing 86 82 4.9% 78 78 0.0% 71 74 -4.7% 64 71 -9.1% 58 67 -13.3%

GX revenue 0 0 10 10 0.0% 60 60 0.0% 140 140 0.0% 215 215 0.0%

MSS revenues 755 757 -0.2% 780 788 -1.0% 857 870 -1.5% 958 973 -1.5% 1,056 1,072 -1.5%

Growth 2.3% 2.5% -0.2pp 3.2% 4.1% -0.9pp 10.0% 10.4% -0.5pp 11.8% 11.9% -0.1pp 10.1% 10.2% 0.0pp

Global revenues 797 797 -0.1% 814 821 -0.8% 892 903 -1.3% 993 1,006 -1.3% 1,090 1,105 -1.4%

Solutions revenues 750 750 0.0% 656 731 -10.3% 662 731 -9.4% 669 731 -8.5% 676 732 -7.7%

Intercompany (306) (303) 1.0% (316) (315) 0.2% (347) (348) -0.2% (388) (389) -0.3% (427) (429) -0.3%

Consolidated revenues 1,241 1,245 -0.3% 1,154 1,236 -6.7% 1,207 1,286 -6.1% 1,274 1,348 -5.5% 1,338 1,408 -5.0%

Growth -3.7% -3.0% -0.7pp -6.3% -0.3% -6.0pp 4.6% 4.0% 0.6pp 5.5% 4.9% 0.7pp 5.1% 4.4% 0.6pp

Global EBITDA 568 567 0.3% 556 582 -4.5% 613 666 -8.0% 689 754 -8.7% 759 826 -8.1%

Solutions EBITDA 76 73 4.9% 64 71 -9.6% 66 65 1.7% 67 65 2.7% 68 65 3.7%

Consolidated EBITDA 645 639 0.8% 620 653 -5.0% 679 731 -7.2% 756 820 -7.8% 826 891 -7.3%

EBITDA (ex-L2) 638 634 0.6% 620 653 -5.0% 679 731 -7.2% 756 820 -7.8% 826 891 -7.3%

Operating profit 415 409 1.3% 323 384 -16.0% 331 467 -29.1% 438 515 -15.0% 509 577 -11.8%

PBT 354 347 1.9% 242 303 -20.1% 214 349 -38.9% 322 399 -19.2% 397 466 -14.8%

Net income 273 250 9.2% 186 233 -20.1% 164 269 -38.9% 248 307 -19.2% 306 359 -14.8%

NI (ex-LightSquared) 268 246 8.8% 186 233 -20.1% 164 269 -38.9% 248 307 -19.2% 306 359 -14.8%

Headline EPS 0.44 0.56 -21.8% 0.42 0.52 -20.1% 0.37 0.60 -38.9% 0.55 0.69 -19.2% 0.68 0.80 -14.8%

Adjusted EPS (US$) 0.59 0.56 6.2% 0.42 0.53 -21.6% 0.37 0.60 -38.9% 0.55 0.69 -19.2% 0.68 0.80 -14.8%

DPS (US$) 0.47 0.49 -4.5% 0.49 0.54 -8.9% 0.51 0.59 -13.0% 0.54 0.65 -17.0% 0.57 0.71 -20.8%

Exchange rate 1.57 1.57 0.0% 1.54 1.54 0.0% 1.54 1.54 0.0% 1.54 1.54 0.0% 1.54 1.54 0.0%

CAPEX 625 589 6.1% 510 390 30.8% 200 250 -20.0% 200 180 11.1% 220 170 29.4%

FCF -140 -190 -26.0% -101 37 -372.2% 237 208 13.7% 291 356 -18.4% 358 458 -21.8%

Net debt (end) 1,866 1,921 -2.9% 2,154 2,116 1.8% 2,140 2,164 -1.1% 2,083 2,089 -0.3% 1,970 1,940 1.6%

2013E 2013E 2014E 2014E

CS Cons Δ (%) CS Cons Δ (%)

MSS revenue 755 754 0.2% 780 779 0.1%

Revenue 1,241 1,255 -1.1% 1,154 1,211 -4.7%

EBITDA 645 651 -1.0% 620 626 -0.9%

PBT 354 309 14.5% 242 247 -2.1%

Source: Credit Suisse estimates, Inmarsat for consensus estimates for FY13E and FY14E only

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Figure 57: Global wholesale VSAT market revenue model US$ in millions, unless otherwise stated

Wholesale Revs (US$'m) US$'m 2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Maritime VSAT 135 145

US DoD 502 643

Energy VSAT 152 168

Enterprise, Consumer,

Retail & other

576 944

Total US$'m 1,365 1,900 1,995 2,137 2,266 2,357 2,452 2,551 2,654 2,761 2,872 2,988

growth y/y 5.0% 7.1% 6.1% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%

Inmarsat market share 0.4% 2.4% 5.5% 8.1% 10.5% 12.5% 14.6%

Inmarsat revenues (us$

'm)

10 60 140 215 290 360 435

VSAT service revenue US$'m 5,400 6,370 7,340 7,707 8,255 8,754 9,107 9,474 9,856 10,253 10,666 11,096 11,544

Wholesale margin % 25.3% 25.0% 25.9% 25.9% 25.9% 25.9% 25.9% 25.9% 25.9% 25.9% 25.9% 25.9% 25.9%

VSAT sites in service 000s 2,400 2,550 2,750 2,888 3,032 3,183 3,279 3,377 3,479 3,583 3,691 3,801 3,915

growth y/y 6.3% 7.8% 5.0% 5.0% 5.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%

Annual service rev per site US$'m 2,250 2,498 2,669 2,696 2,723 2,750 2,777 2,805 2,833 2,862 2,890 2,919 2,948

11.0% 6.8% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%

Source: Inmarsat, Comsys, Credit Suisse estimates

07 February 2014

Global Satellite 45


07 February 2014

Global Satellite 46

Europe / France


Eutelsat Communications (ETL.PA)

Reinstate coverage with Neutral

■ We reinstate coverage of Eutelsat with a Neutral rating and a target

price of €23 per share. We see Eutelsat as the most exposed FSS operator

to US DoD spend and oversupply in Africa, and we prefer SES among the

FSS Satellite operators. We are below consensus for Eutelsat for the first

time in over two years.

■ In our view, Eutelsat does not have the required satellite capacity to sustain

high single digit revenue growth over the next six months. In July 2013,

Eutelsat cut its guidance for revenue growth to above 2.5% in FY June 2014

and above 5-6% for the two years ahead. This reflected 1) uncertainty from

US DoD budget cuts, which impact multi-usage revenues, and 2) lack of

available capacity to sustain high growth in video and data applications.

■ We adjust our estimates for less capacity available in the short term for video

applications. Our forecasts for this segment were cut by ~3% for June 2014-

June 2016. Nevertheless, video applications will be the main growth driver

for Eutelsat from 2015 onwards, as the company has plans to increase

capacity in this area.

■ We also make some adjustments for multi-usage and data revenue, to

account for pressure seen in the last six months. Our multi-usage forecasts

remain flat for 2014, benefiting from the integration of Eutelsat 172A in the

fleet. Although we believe the worst is over for the US DoD budgetary

concerns, we remain cautious on Eutelsat as it is the most exposed to these

events among our European FSS operators.

■ Catalysts: 2Q FY June 2014 results, 13 February 2014.

■ Valuation: Our TP of €23 is based on a DCF valuation with 6.9% WACC

and 2% terminal growth rate.


17

22

27




CAC 40 INDEX which closed at 4130.69 on 04/02/14

On 04/02/14 the spot exchange rate was €1./Eu 1. -

Eu .74/US$1

Performance Over 1M 3M 12M Absolute (%) -2.1 -6.8 -11.6 Relative (%) 1.4 -4.4 -17.2


Year 06/13A 06/14E 06/15E 06/16E Revenue (Eu m) 1,284.1 1,313.9 1,391.5 1,451.1 EBITDA (Eu m) 995.27 996.35 1,053.34 1,109.73 Adjusted Net Income (Eu m) 354.9 352.6 367.7 405.3 CS adj. EPS (Eu) 1.62 1.61 1.67 1.85 Prev. EPS (Eu) — 1.72 1.88 2.07 ROIC (%) 9.23 8.53 8.58 9.02 P/E (adj., x) 13.81 13.90 13.33 12.09 P/E rel. (%) 108.5 100.5 109.9 111.2 EV/EBITDA 7.6 7.7 7.3 6.9

Dividend (06/14E, Eu) 1.12 IC (06/14E, Eu m) 5,013.62 Dividend yield (%) 5.0 EV/IC 1.5 Net debt (06/14E, Eu m) 2,758.4 Current WACC 6.9 Net debt/equity (06/14E, %) 122.3 Free float (%) 89.1 BV/share (06/14E, Eu) 10.0 Number of shares (m) 220.11


Rating (from Outperform) NEUTRAL* Price (04 Feb 14, Eu) 22.31 Target price (Eu) 23.00¹ Market cap. (Eu m) 4,910.74 Enterprise value (Eu m) 7,669.1




Research Analysts

Paul Sidney

44 20 7888 6015

[email protected]

Francisco Sanches

44 20 7888 6834

[email protected]

07 February 2014

Global Satellite 47

Figure 58: Credit Suisse changes to estimates for Eutelsat Euros unless otherwise stated

FY end June 2014E 2015E 2016E

New Old Diff New Old Diff New Old Diff

Video applications 886 917 -3.3% 953 985 -3.3% 994 1,026 -3.2%

Data Services 276 282 -2.1% 295 307 -4.0% 308 320 -3.9%

Multi-Usage 139 138 0.7% 137 141 -3.3% 143 144 -1.0%

Other 13 8 n.m. 7 9 n.m. 7 12 n.m.

Sub-total 1,314 1,345 -2.3% 1,392 1,443 -3.6% 1,451 1,502 -3.4%

One off revenues 0 0 n.m. 0 0 n.m. 0 0 n.m.

Revenues 1,314 1,345 -2.3% 1,392 1,443 -3.6% 1,451 1,502 -3.4%

EBITDA 996 1,039 -4.1% 1,056 1,114 -5.3% 1,116 1,172 -4.8%

EBIT 643 684 -6.0% 679 746 -8.9% 751 818 -8.2%

Net Income 353 377 -6.4% 369 412 -10.4% 409 455 -10.1%

DPS 1.12 1.20 -6.4% 1.18 1.31 -10.4% 1.30 1.45 -10.1%

CAPEX -568 -480 18.3% -573 -456 25.8% -486 -300 61.9%


Figure 59: Credit Suisse estimates vs. Eutelsat guidance and consensus Euros unless otherwise stated

Credit Suisse estimates FY June 14 FY June 15 FY June 16

Guidance CSe Cons Guidance CSe Cons Guidance CSe Cons

Revenue growth % >2.5% 3.1% 4.6% >5% 5.9% 7.0% 5% 4.3% 5.4%

EBITDA margin % 77 75.8 76.8 77 75.7 76.8 77 76.5 76.8

CAPEX (€ 'm/year) 550 568 562 550 573 553 550 486 567

CSe Cons % diff CSe Cons % diff CSe Cons % diff

Revenues 1,314 1,333 -1.4% 1,392 1,427 -2.5% 1,451 1,504 -3.5%

EBITDA 996 1,023 -2.6% 1,056 1,096 -3.7% 1,116 1,156 -3.5%

Margin (%) 75.8 76.8 75.7 76.8 76.5 76.8

643 638 0.7% 679 684 -0.7% 751 720 4.3%

EBIT 353 331 6.5% 369 356 3.6% 409 382 7.1%

Net Profit (Pre Except) 568 562 1.1% 573 553 3.6% 486 567 -14.4%

CAPEX 1,314 1,333 -1.4% 1,392 1,427 -2.5% 1,451 1,504 -3.5%

Source: Company data, Credit Suisse estimates, Thomson Reuters

07 February 2014

Global Satellite 48

Figure 60: Credit Suisse estimates for Eutelsat (fiscal year ending in June) € in millions, unless otherwise stated

Revenue FY12A Q113 Q213 Q313 Q413 FY13 Q114A Q214E FY14E

Video applications 832.1 216.3 214.4 216 219 866 217 219 886

Data & Value Added Services 235.0 61.1 63.8 61 67 253 66 68 276

Multi-Usage 146.4 34.1 38.6 35 37 145 37 34 139

Other 5.0 3 2.4 3 2 10 3 3 13

Sub total 1,218.6 314.5 319.2 315.2 325.4 1,274 323 325 1,314

One-off revenues 3.5 0 0 7.7 2.1 9.8 0 0 0

Total 1222.1 314.5 319.2 322.9 327.5 1284 324 325 1314

4.6% 6.5% 3.9% 4.6% 5.3% 5.1% -74.8% -84.9% -39.4%

Revenue growth y-o-y

Video applications 5.8% 9.1% 4.5% 2.6% 0.3% 4.0% 0.4% 2.3% 2.3%

Data & Value Added Services 0.4% 2.5% 9.6% 5.0% 13.2% 7.6% 8.5% 6.9% 9.3%

Multi-Usage 16.6% -5.8% 0.9% -4.3% 6.8% -0.7% 7.9% -11.7% -4.6%

Other -71.0% 130.8% 17.4% -7.1% -318.2% 106.1% 0.0% 35.3% 24.1%

Sub total 4.7% 6.5% 5.1% 2.1% 4.6% 4.6% 2.8% 1.8% 3.1%

Revenue share of total

Video applications 68.3% 68.8% 67.2% 68.7% 67.2% 67.9% 67.2% 67.5% 67.4%

Data & Value Added Services 19.3% 19.4% 20.0% 19.3% 20.6% 19.8% 20.5% 21.0% 21.0%

Multi-Usage 12.0% 10.8% 12.1% 11.2% 11.5% 11.4% 11.4% 10.5% 10.6%

Other 0.4% 1.0% 0.8% 0.8% 0.7% 0.8% 0.9% 1.0% 1.0%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%


Figure 61: DCF valuation for Eutelsat € in millions, unless otherwise stated

2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

EBITDA 995 996 1,053 1,110 1,153 1,195 1,238 1,278

CAPEX Normalized (539) (539) (539) (539) (539) (539) (539) (539)

Tax paid (208) (178) (186) (213) (239) (254) (271) (287)

Change in working capital (26) - - - - - - -

Unlevered free cash flow 222 279 329 357 375 402 428 451

WACC 6.7% 7.0% 7.3% Net debt (€'m) 2,375

PV TV 5,057 4,403 4,099 WACC 6.7% 7.0% 7.3%

5,754 5,287 4,876 Equity 4,908 4,231 3,906

7,319 6,616 6,016 5,605 5,116 4,682

7,170 6,445 5,822

EV (€'m) 7,283 6,606 6,281

7,980 7,491 7,057 Terminal growth

9,545 8,820 8,197 TP (€) 1.00% 2.00% 3.00%

6.7% 22.3 25.5 32.6

WACC 7.0% 19.2 23.2 29.3

7.3% 17.7 21.3 26.5 Source: Company data, Credit Suisse estimates, NOTE: Normalized figure for CAPEX as yearly costs associated with satellite launches

07 February 2014

Global Satellite 49


07 February 2014

Global Satellite 50

Europe / Luxembourg


SES (SESFd.PA)

Preferred Global FSS play

■ We reiterate our Outperform and €27 price target on SES. In this report,

we make only minor adjustments to our forecasts for SES. We are broadly in

line with consensus in the short term, but we are ahead in 2015, reiterating

our view that, in the longer term, supply of satellite capacity will be exceeded

by demand.

We, and consensus, are below SES guidance (3-4% revenue growth in 2013

and 4.5% revenue CAGR for 2012-2014), which we believe could be revised

downwards due to further launch delays. However, consensus is already

below guidance and, to a large extent, factoring this into their estimates.

However we are still optimistic in the mid-term for SES and see headwinds

from satellite delays only affecting short-term numbers.

■ Investment case: We make only small adjustments to our forecasts for SES.

SES has shown resilience in the North American region, as the least

exposed to US DoD budget cuts, among European Satellite operators. Our

forecasts for North American revenues are broadly unchanged.

■ We increase our estimates for the International region for FY 2013, to

account for a great uptake for capacity on the SES-6 satellite, as reported in

3Q13. SES-6 has brought strong exposure to the LatAm region, where SES

sees revenue growth, offsetting pressure in other regions, such as Africa.

Risks to our view are limited to the short term. In our view, short-term

company guidance is too high and may be reviewed for the impact of

satellite delays in 2013. Nevertheless, we still see SES as our preferred

stock among FSS operators, benefiting from better geographic exposure

than its peers, and we expect it to outperform in the mid-term.

■ Catalysts: Due to the impact of satellite delays that affected SES over 2013,

we believe that guidance for SES could be cut. FY13 results on 21 February.

■ Valuation: Our target price of €27 per share is based on a DCF valuation

with 7.1% WACC, 1.7% terminal growth rate and a 10% discount.


16

21




CAC 40 INDEX which closed at 4188.1 on 04/02/14

On 04/02/14 the spot exchange rate was €1./Eu 1. -

Eu .74/US$1

Performance Over 1M 3M 12M Absolute (%) 2.9 11.1 4.9 Relative (%) 5.9 15.0 -7.6


Year 12/12A 12/13E 12/14E 12/15E Revenue (Eu m) 1,828.0 1,854.5 1,981.8 2,098.3 EBITDA (Eu m) 1,346.60 1,360.88 1,455.82 1,547.33 Adjusted Net Income (Eu m) 648.8 551.1 618.1 688.2 CS adj. EPS (Eu) 1.60 1.36 1.53 1.70 Prev. EPS (Eu) — — 1.54 1.69 ROIC (%) 12.28 10.61 11.80 11.98 P/E (adj., x) 15.05 17.72 15.80 14.19 P/E rel. (%) 118.2 128.1 130.2 130.5 EV/EBITDA 10.2 10.7 9.7 8.9

Dividend (12/13E, Eu) 1.49 IC (12/13E, Eu m) 6,842.71 Dividend yield (%) 6.2 EV/IC 2.1 Net debt (12/13E, Eu m) 4,733.9 Current WACC 7.1 Net debt/equity (12/13E, %) 224.5 Free float (%) 57.0 BV/share (12/13E, Eu) 5.0 Number of shares (m) 405.12


Rating OUTPERFORM* Price (04 Feb 14, Eu) 24.10 Target price (Eu) 27.00¹ Market cap. (Eu m) 9,763.39 Enterprise value (Eu m) 14,497.3




Research Analysts

Paul Sidney

44 20 7888 6015

[email protected]

Francisco Sanches

44 20 7888 6834

[email protected]

07 February 2014

Global Satellite 51

Figure 62: Credit Suisse changes to estimates for SES € in millions, unless otherwise stated

2013E 2014E 2015E

New Old Diff New Old Diff New Old Diff

Revenues

Europe 921 928 -0.8% 972 978 -0.6% 1,015 1,014 0.1%

N America 404 405 -0.4% 410 414 -1.1% 418 423 -1.4%

International 530 521 1.8% 601 601 -0.0% 665 665 0.0%

Group revenues 1,854 1,855 0.0% 1,982 1,992 -0.5% 2,098 2,103 -0.2%

Cost of sales (174.3) (174.3) 0.0% (182.3) (183.3) -0.5% (188.8) (189.2) -0.2%

Staff costs (185.7) (185.7) 0.0% (195.0) (195.0) 0.0% (204.8) (204.8) 0.0%

Other operating expenses (133.5) (133.5) 0.0% (148.6) (149.4) -0.5% (157.4) (157.7) -0.2%

OPEX (493.6) (493.6) 0.0% (526.0) (527.7) -0.3% (551.0) (551.7) -0.1%

EBITDA 1,361 1,361 0.0% 1,456 1,464 -0.6% 1,547 1,551 -0.2%

EBITDA margin 73.4% 73.4% 73.5% 73.5% 73.7% 73.8%

D&A (526.7) (527.9) -0.2% (535.1) (537.9) -0.5% (556.1) (557.2) -0.2%

Operating profit 834.2 833.0 0.1% 920.7 926.6 -0.6% 991.3 993.8 -0.3%

Net financing charge (172) (173) -1.0% -157 -162 -2.9% (140) (146) -4.4%

Income tax expense (86) (85) 0.9% (95) (96) -0.2% (153) (153) 0.5%

Profit after tax 576 574 0.4% 668 669 -0.2% 698 695 0.5%

Associates (25.0) (25.0) (50.0) (45.0) (10.0) (10.0)

NCI -0.3 -0.3 0.0 0.0 0.0 0.0

Net profit (to equity holders) 551 549 0.4% 618 624 -1.0% 688 685 0.5%


Figure 63: SES Income statement and Credit Suisse forecasts € in millions, unless otherwise stated

2011 2012 Q113 Q213 Q313A Q413E 2013E 2014E 2015E

Revenues

Europe 955 923 226 229 228 238 921 972 1,015

growth y/y -3.3% -5.9% 0.6% 3.4% 1.3% -0.3% 5.5% 4.5%

N America 367 422 95 108 101 100 404 410 418

growth y/y 14.9% -0.1% 11.2% -18.8% -5.7% -4.4% 1.5% 2.0%

International 411 483 120 133 139 138 530 601 665

growth y/y 17.5% 4.3% 13.4% 12.9% 8.6% 9.8% 13.3% 10.8%

Group reported revenues 1,733 1,828 441 470 468 476 1,854 1,982 2,098

Growth -0.1% 5.5% -2.1% 6.3% 0.0% 1.7% 1.4% 6.9% 5.9%

OPEX (458.5) (481.4) (119.6) (128.9) (120.4) (124.7) (493.6) (526.0) (551.0)

change y/y 19.2 22.9 6.7 15.0 (0.4) (9.1) (12.2) (32.4) (25.0)

EBITDA 1,275 1,347 321 341 347 352 1,361 1,456 1,547

EBITDA margin 73.5% 73.7% 74.0% 72.6% 74.3% 73.8% 73.4% 73.5% 73.7%

D&A (466.4) (556.1) (124.0) (129.4) (129.0) (144.3) (526.7) (535.1) (556.1)

Operating profit 808.2 790.5 197.2 211.4 218.3 207.3 834.2 920.7 991.3

Net financing charge (158.5) (170) (29.5) (53.0) (44.9) (44) (172) (157) (140)

Income tax expense (16.0) 42 (21.3) (24.0) (21.3) (19) (86) (95) (153)

Associates (8.4) (14.0) (4.6) (7.7) (6.7) (6.0) (25.0) (50.0) (10.0)

Non-controlling interests (7.6) (0.3) (0.3) (0.2) -0.3 0.0 0.0

Net profit 617.7 649 142 127 145 137 551 618 688

growth y/y 26.8% 5.0% -6.4% -14.1% -7.8% -28.6% -15.1% 12.2% 11.3%


07 February 2014

Global Satellite 52

Figure 64: Credit Suisse vs. consensus estimates for SES € in millions, unless otherwise stated

2013E 2014E 2015E

C Suisse Cons % diff C Suisse Cons % diff C Suisse Cons % diff

Revenue 1,854 1,866 -0.6% 1,982 1,993 -0.6% 2,098 2,072 1.3%

EBITDA 1,361 1,368 -0.5% 1,456 1,469 -0.9% 1,547 1,529 1.2%

Margin 73.4% 73.3% 73.5% 73.7% 73.7% 73.8%

EBIT 834 851 -1.9% 921 918 0.3% 991 983 0.9%

NI 551 573 -3.9% 618 615 0.6% 688 686 0.3%

Source: Credit Suisse estimates, Thomson Reuters

Exhibit 65: Credit Suisse vs. SES guidance € in millions, unless otherwise stated

Credit Suisse SES Guidance Difference

Revenues

2013e growth % 2.3% 3-4% -0.7/-1.7pp

2012-2014e cagr % 3.4% 4.5% -1.10pp

EBITDA

2013e growth% 2.0% 2.5-3.5% -0.5/-1.5pp

2012-2014e cagr% 3.2% 4.5% 1.3pp

Source: Company data, Credit Suisse estimates, NOTE: All figures are on a constant currency basis

Exhibit 66: Target price calculation for SES

3 yr DCF SES 2013E 2014E 2015E

EBITDA 1,361 1,400 1,547

CAPEX (516) (454) (440)

Tax paid (86) (91) (153)

Change in working capital 10 10 10

Unlevered free cash flow 769 866 964

WACC 6.8% 7.1% 7.4%

EV 16,344 15,425 14,600 PV TV 14,073 13,166 12,355

16,899 15,915 15,036 14,628 13,657 12,790

21,941 20,276 18,840 19,670 18,017 16,594

2013E Net debt 3,814

Price per sahre without discount Our adopted price with 10% discount

WACC Terminal growth WACC

1.5% 1.7% 3.0% Discount 6.8% 7.1% 7.4%

6.8% 30.9 32.3 44.7 15% 27.5 25.4 23.5

7.1% 28.7 29.9 40.6 10% 29.1 26.9 24.9

7.4% 26.6 27.7 37.1 20% 25.8 23.9 22.2 Source: Credit Suisse estimates

07 February 2014

Global Satellite 53


07 February 2014

Global Satellite 54

Asia Pacific / Australia

Alternative Carriers (Telecommunications - SMID (AU))

NewSat Limited (NWT.AX / NWT AU)

Reiterate Outperform rating

■ NewSat is an Australian Teleport operator supplying secure satellite data

and communications services to government, enterprise and telecoms

customers in remote locations, primarily around Australia, PNG and Timor

Leste. Services are delivered via NWT's two Australian teleports (Adelaide

and Perth) which uplink to 13 third-party geostationary satellites. We have

upgraded EBITDA FY15 to FY17 by 3% to 8% to predominantly reflect a

lower assumed long term AUD:USD (0.85 from 0.90). Our FY14 Teleport

forecasts decline to reflect weaker Teleport sales over the past 12 months.

■ NWT has rights to 8 orbital slots and is funded to launch its first

satellite, Jabiru-1, in mid-2015. NWT owns rights to eight orbital slots

which underpins its plans to become a vertically integrated satellite operator.

Its first Satellite, Jabiru-1 (J-1), will carry 210TPE of Ka-Band capacity and

18TPE of Ku/S-band capacity over high growth regions of the Middle East,

Africa and Asia. J-1 capex is expected to be ~US$611mn and has been

funded via a $108mn equity raising (Feb-13), US$399mn of ECA debt and

US$30m Mezzanine debt.

■ Significant upside in NWT. Share price implies an overly bearish J-1

result: The current NWT share price implies that J-1 utilisation only reaches

60% and price is discounted 15% below spot. We think this is overly bearish

given NWT has already pre-sold 46% of Year 1–3 capacity and that we

expect demand growth to be 4.5%–9% p.a. to 2016 in J-1 regions.

■ Catalysts: Pre-sales contracts over the next 18 months and finalization of

ECA funding.

■ Our 12-month forward base case DCF of $0.87ps suggests ~90%

potential upside employing a conservative 1.50 equity beta (13.75% Ke).

Our $0.74ps TP is a risk weighting of six scenarios. Our more optimistic

valuation is $1.19ps.


40

90

140

0

0.5

1

1.5

2


Price (LHS) Rebased Rel (RHS)

The price relative chart measures performance against the S&P

ASX 200 Index which closed at 5070.31 on 05/02/14

On 05/02/14 the spot exchange rate was A$1.12/US$1

Performance Over 1M 3M 12M

Absolute (%) 2.2 4.6 -12.5

Relative (%) 4.5 8.1 -24.3


Year 06/13A 06/14E 06/15E 06/16E

Revenue (A$mn) 39.2 38.1 52.6 155.1

EBITDA (A$mn) 3.4 0.0 7.9 60.8

EBIT (A$mn) 1.8 -1.2 6.6 18.3

Net income (A$mn) 1.8 -0.2 5.2 8.3

EPS (CS adj.) (Ac) 0.48 -0.02 0.74 1.18

Change from previous EPS (%) n.a. n.m 2.0 90.1

Consensus EPS (Ac) n.a. 0.40 2.60 5.10

EPS growth (%) -50.5 -105.0 3,183.8 60.3

P/E (x) 94.5 -1,904.0 61.7 38.5

Dividend (Ac) — — — —

Dividend yield (%) — — — —

P/B (x) 0.8 1.4 1.4 1.4

Net debt/equity (%) net cash 54.7 202.2 190.1

Source: Company data, ASX, Credit Suisse estimates, * Adj. for goodwill, notional interest and unusual items. Relative P/E against

ASX/S&P200 based on pre GW in AUD. Company PE calculation is based on displayed EPS Currency

Rating OUTPERFORM* [V]

Price (05 Feb 14, A$) 0.46

Target price (A$) (from 0.69) 0.74¹

Market cap. (A$mn) 269.11

Yr avg. mthly trading (A$mn) 10

Last month's trading (A$mn) 23

Projected return:

Capital gain (%) 62.6

Dividend yield (net %) —

Total return (%) 62.6

52-week price range 0.57 - 0.34

* Stock ratings are relative to the relevant country benchmark.


[V] = Stock considered volatile (see Disclosure Appendix).

Research Analysts

Bradley Clibborn

61 2 8205 4465

[email protected]

07 February 2014

Global Satellite 55

Figure 67: Financial Summary

NewSat Limited (NWT) Year ending 30 Jun In AUDmn, unless otherwise stated2012 2013 2014 2015 2016 2012 2013 2014 2015 2016

Share Price: A$0.46 Earnings 06/12A 06/13A 06/14E 06/15E 06/16ERating c_EPS_SHARESEquiv. FPO (period avg.) mn 232.4 379.7 676.3 703.5 705.5

Target Price A$ 0.74 c_EPS*100EPS (Normalised) c 1.0 0.5 0.0 0.7 1.2

vs Share price % 61.88 EPS_GROWTH*100EPS Growth % -50.5 -105.0 3,183.8 60.3

DCF A$ 0.87 c_EBITDA_MARGIN*100EBITDA Margin % 10.2 8.6 0.1 14.9 39.2

c_DPS*100DPS c 0.0 0.0 0.0 0.0 0.0

c_PAYOUT*100Payout % 0.0 0.0 0.0 0.0 0.0

FRANKING*100Franking % 100.0 100.0 100.0 100.0 100.0

c_FCF_PS*100Free CFPS c -14.4 -6.3 -33.3 -47.7 5.9

Profit & Loss 06/12A 06/13A 06/14E 06/15E 06/16E c_TAX_RATE*100Effective tax rate % 0.0 0.0 30.0 30.0 30.0

Sales revenue 37.2 39.2 38.1 52.6 155.1 ValuationEBITDA 3.8 3.4 0.0 7.9 60.8 c_PE P/E x 47.0 94.9 -1,912.4 62.0 38.7

Depr. & Amort. (1.6) (1.6) (1.2) (1.3) (42.5) c_EBIT_MULTIPLE_CURREV/EBIT x 126.3 108.1 -333.2 111.0 38.4

EBIT 2.2 1.8 (1.2) 6.6 18.3 c_EBITDA_MULTIPLE_CUEV/EBITDA x 72.8 56.2 8,294.7 93.2 11.5

Associates 0.0 0.0 0.0 0.0 0.0 c_DIV_YIELD*100Dividend Yield % 0.0 0.0 0.0 0.0 0.0

Net interest Exp. 0.1 0.1 1.0 0.8 (6.3) c_FCF_YIELD*100FCF Yield % -31.4 -13.7 -72.8 -104.4 12.9

Other 0.0 0.0 0.0 0.0 0.0 c_PB Price to Book x 1.7 0.8 1.4 1.4 1.4

Profit before tax 2.3 1.8 (0.2) 7.4 11.9 ReturnsIncome tax (0.0) (0.0) 0.1 (2.2) (3.6) c_ROE*100Return on Equity % 3.6 0.9 -0.1 2.3 3.7

Profit after tax 2.3 1.8 (0.2) 5.2 8.3 c_I_NPAT/c_I_SALES*100Profit Margin % 6.1 4.7 -0.4 9.9 5.4

Minorities 0.0 0.0 0.0 0.0 0.0 c_I_SALES/c_B_TOT_ASSAsset Turnover x 0.4 0.2 0.1 0.1 0.2

Preferred dividends 0.0 0.0 0.0 0.0 0.0 c_ASSETS/c_EQ_COMMONEquity Multiplier x 1.4 1.2 2.0 3.4 3.3

Associates & Other 0.0 0.0 0.0 0.0 0.0 c_ROA*100Return on Assets % 2.6 0.7 0.0 0.7 1.1

Normalised NPAT 2.3 1.8 (0.2) 5.2 8.3 c_ROIC*100Return on Invested Cap. % 3.2 1.4 -0.2 0.7 1.9

Unusual item after tax 0.0 8.6 0.0 0.0 0.0 GearingReported NPAT 2.3 10.4 (0.2) 5.2 8.3 c_GEARING*100Net Debt to Net debt + Equity % 8.5 Net Cash 35.4 66.9 65.5

c_NET_DEBT/c_I_EBITDANet Debt to EBITDA x 1.5 Net Cash 2,607.3 58.8 7.1

Balance Sheet 06/12A 06/13A 06/14E 06/15E 06/16E c_I_EBITDA/ c_I_NET_INTERESTInt Cover (EBITDA/Net Int.) x -51.2 -44.3 0.0 -9.8 9.6

Cash & equivalents 3.8 112.8 87.4 59.3 59.2 c_I_EBIT/ c_I_NET_INTERESTInt Cover (EBIT/Net Int.) x -29.5 -23.1 1.2 -8.2 2.9

Inventories 0.5 0.5 0.6 0.6 1.7 (c_C_CAPEX/c_I_SALES)*-100Capex to Sales % 103.0 77.1 581.1 650.3 3.0

Receivables 6.3 4.7 6.1 8.4 35.3 (c_C_CAPEX/c_I_DEPR)*-100Capex to Depreciation % 2,380.6 1,876.6 17,996.2 27,175.9 10.9

Other current assets 3.9 6.7 6.7 6.7 6.7

Current assets 14.5 124.7 100.7 75.0 102.8 MSCI IVA (ESG) Rating Property, plant & equip. 6.2 7.5 7.4 7.7 511.9 TP ESG Risk (%): -2.5

Intangibles 65.7 125.9 346.2 686.8 144.7

Other non-current assets 0.0 0.0 0.0 0.0 0.0

Non-current assets 71.9 133.4 353.6 694.5 656.7

Total assets 86.3 258.0 454.3 769.6 759.5

Payables 7.6 12.3 9.1 10.1 23.8

Interest bearing debt 9.5 31.8 211.3 521.8 490.6

Other liabilities 7.2 7.5 7.4 8.8 18.2 MSCI IVA Risk:

Total liabilities 24.4 51.6 227.8 540.7 532.6

Net assets 61.9 206.4 226.5 228.8 226.9

Ordinary equity 61.9 206.4 226.5 228.8 226.9

Minority interests 0.0 0.0 0.0 0.0 0.0

Preferred capital 0.0 0.0 0.0 0.0 0.0

Total shareholder funds 61.9 206.4 226.5 228.8 226.9

Net debt 5.8 -81.0 123.9 462.6 431.4 Source: MSCI ESG Research

Cashflow 06/12A 06/13A 06/14E 06/15E 06/16E Share Price Performance

EBIT 2.2 1.8 -1.2 6.6 18.3

Net interest 0.0 0.0 0.0 0.0 -7.0

Depr & Amort 3.8 3.4 0.0 7.9 60.8

Tax paid 0.0 0.0 -0.1 -0.8 5.8

Working capital 4.8 6.4 -4.6 6.4 46.7

Other -5.9 -5.0 2.1 -13.7 -78.4

Operating cashflow 4.9 6.5 -3.7 6.4 46.1

Capex -38.3 -30.2 -221.5 -342.2 -4.7

Capex - expansionary

Capex - maintenance

Acquisitions & Invest

Asset sale proceeds 0.0 0.0 0.0 0.0 0.0

Other 0.0 0.0 0.0 0.0 0.0

Investing cashflow -38.3 -30.2 -221.5 -342.2 -4.7

Dividends paid 0.0 0.0 0.0 0.0 0.0

Equity raised 28.8 96.9 6.4 0.0 0.0

Net borrowings 5.8 32.7 177.5 303.9 -18.9

Other -3.0 -9.2 0.0 0.0 -24.7 1 Month 3 Month 12 Month

Financing cashflow 31.6 120.4 183.9 303.9 -43.5 Absolute 1.6% 5.1% -12.1%

Total cashflow -1.8 96.7 -41.2 -31.8 -2.0 Relative 4.6% 9.6% -17.8%

Adjustments 0.0 12.3 15.8 3.7 2.0

Net change in cash -1.8 109.0 -25.4 -28.1 0.0 Source: Reuters 52 week trading range: 0.34-0.57

MSCI IVA Risk Comment:

4/02/2014 13:57

NewSat Limited (NewSat) is an Australia-based specialist satellite communications company,

delivering Internet, voice, data and video communications via satellite.

Credit Suisse View

TP Risk Comment: We include 2.5% discount for ESG risks

associated with the types of countries NWT operates in and risks

associated with dealing with government clients

OUTPERFORM

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

23/01/2013 23/03/2013 23/05/2013 23/07/2013 23/09/2013 23/11/2013 23/01/2014

NWT.AX XJO

2.7

3.7

4.7

5.7

6.7

7.7

Environment Social Governance

Stock Local Sector

Country Global Sector


07 February 2014

Global Satellite 56

NewSat and Jabiru update

Below we provide an update on NewSat since our last report dated Jul-2013

NWT expected to draw on ECA funds Jan-2014 following Malaysian approval for S-

band payload: On 30 -December- 2013, MEASAT confirmed that it had received a

confirmation letter from the Malaysian Communications and Multimedia Commission

(MCMC) allowing NewSat's Jabiru-1 (J-1) satellite to be launched in MEASAT's 91.5E

orbital slot. The confirmation letter from MCMC was the final condition precedent

outstanding from any party other than for the ECA (Export Credit Agency) lenders or

NewSat. We therefore expect to see documents relating to the ECA loans finalised in

February 2014 with draw down of funds thereafter to make progress payments to

Lockheed Martin who is constructing the Jabiru-1 satellite. We understand Lockheed has

continued working on the Satellite over the past six months while waiting finalisation of

ECA documentation. Satellite completion is anticipated for 2015 with launch mid-2015.

Our model continues to assume a Sep-2015 launch for conservatism with revenue

contribution from mid Nov-15.

One new contract announced for Jabiru-1 over the last six 6months. FY15 will be

much busier year for J-1 contract announcements: On 9 -January -2014, NWT

announced a new US$160mn contract for Jabiru-1 capacity with a South West Asian

Telco for capacity over Pakistan, Afghanistan and the Middle East over a 15- year term.

This contract replaces a US$134mn contract previously agreed with the customer

(US$26mn uplift) and brings total pre-launch contracts signed on J-1 to US$644mn (just

under 47% of year 1-3 capacity). We believe the delay to ECA financial close may have

impacted on NWT's ability to sign pre-launch contracts over the past six months. Further,

launch is still ~18 months away, which attracts a large discount to any deals signed. As we

move into FY15 (within 12 months of launch) we expect to see a number of contract

announcements and the discounts given to customers narrow. Contract announcements

will be a key catalyst in FY15.

Jabiru-2 (MEASAT 3B satellite) due for launch in March -2014: NewSat is launching a

6TPE Ka band payload (Jabiru-2) on the MEASAT 3B satellite. According to Satlaunch.net

the satellite is on track for a March -2014 launch date. We are assuming revenue

contribution to NWT from sale of the capacity from 1 -July -2014. We would expect to see

contract announcements relating to sale of this capacity over the next 3-4 months. Over

the past six months (1H14), NWT has announced ~$6.1mn of satellite contracts for its

Teleports business. We have incorporated this into our forecasts.

Pricing dynamics for Satellite "data" services over Jabiru-1 key regions steady:

Earlier in this industry report, we highlighted risks to pricing in Africa and the Middle East

from slowing demand and oversupply of capacity. Recent company comments have

suggested that the pricing pressure is more specifically related to the consumer

broadband market where NewSat does not compete. Pricing of capacity for use in

corporate/government/telco '"data'" services (where NWT is operating) have been steady

over the past 6six months. We also note that where, and if, / if pricing risks do arise, the

Jabiru-1 satellite has been designed to be able to reallocate capacity into different regions.

Model review / earnings update

We have upgraded our NWT EBITDA forecasts for FY15EE to FY17 by 3% - 11%. Our

forecasts for FY14 have been downgraded. Key assumptions changes are:

■ FY14 downgraded to reflect slower than expected Teleport sales: While the NWT

Teleport business is only a very small contributor to NPV, it is the driver of its current

earnings. New contracts announced for 1H14 are worth $6.1mn, marginally above

$4.7mn in 2H13, however below our expectations. We have reduced 1H14E and

2H14E sales to $6.3mn and $7.5mn respectively which results in a 23% downgrade to

our Teleport revenue forecasts.

07 February 2014

Global Satellite 57

Old New %chg Old New %chg Old New %chg Old New %chg

Sale of Goods 1.9 1.8 -8.2% 2.2 2.5 11.2% 2.2 2.6 16.9% 2.3 2.8 22.9%

Rendering of services 47.6 36.3 -23.7% 54.2 50.2 -7.5% 55.0 53.5 -2.8% 55.8 57.0 2.2%

Total sales income 49.5 38.1 -23.1% 56.4 52.6 -6.8% 150.4 155.1 3.2% 230.7 243.4 5.5%

Cost of Sales -29.9 -24.6 -17.6% -31.5 -30.0 -5.0% -76.2 -77.0 1.1% -78.4 -81.8 4.3%

Gross Profit 19.7 13.5 -31.4% 24.9 22.7 -9.0% 74.2 78.2 5.4% 152.3 161.6 6.1%

Operating Costs -15.7 -13.4 -14.5% -17.3 -14.8 -14.4% -19.4 -17.4 -10.6% -21.3 -19.7 -7.6%

EBITDA 3.9 0.0 -98.8% 7.6 7.9 3.3% 54.7 60.8 11.0% 131.0 141.9 8.4%

Depreciation and amort 1.5 1.2 -18.6% 1.5 1.3 -17.8% 42.8 42.5 -0.6% 44.3 44.0 -0.6%

EBIT 2.4 -1.2 -149.1% 6.1 6.6 8.6% 12.0 18.3 52.4% 86.7 97.9 12.9%

Net Interest expense -1.1 -1.0 -17.0% -0.7 -0.8 12.2% 6.1 6.3 4.0% 11.1 11.5 4.2%

Tax expense 1.1 -0.1 -106.5% 2.0 2.2 9.0% 1.8 3.6 102.9% 22.7 25.9 14.2%

...Effective tax rate (%) 30% 30% 30% 30% 30% 30% 30% 30%

Normalised NPAT 2.5 -0.2 -106.5% 4.8 5.2 9.0% 4.1 8.3 102.9% 52.9 60.4 14.2%

EPS (cps) 0.4 0.0 -106.3% 0.7 0.7 2.0% 0.6 1.2 90.1% 8.0 8.5 7.1%

Cash Flow

Operating Cash Flow 4.9 -3.7 -175.1% 6.0 6.4 7.7% 42.3 46.1 9.2% 96.9 104.4 7.7%

Capex - Total 222.4 221.5 -0.4% 222.6 342.2 53.7% 4.5 4.7 3.2% 6.9 7.3 5.5%

…PP&E 1.5 1.1 -23.1% 1.7 1.6 -6.8% 4.5 4.7 3.2% 6.9 7.3 5.5%

…Project Development 220.9 220.3 -0.3% 220.9 340.6 54.2% 0.0 0.0 0.0 0.0

Free Cash Flow -217.5 -225.1 3.5% -216.6 -335.8 55.0% 37.7 41.5 9.9% 90.0 97.1 7.8%

Cash 81.8 87.4 6.9% 42.4 59.3 39.8% 42.1 59.2 40.6% 36.9 49.8 34.9%

Net Debt 228.8 123.9 -45.9% 459.8 462.6 0.6% 421.2 431.4 2.4% 331.2 334.3 0.9%

Earnings Changes FY14e FY15e FY16e FY17e


■ Our Teleport assumptions from FY15 and beyond are largely unchanged. The

launch of Jabiru-2 in March -2014 will give NWT access to capacity at rates well below

(~25%) what it is currently paying to third-party satellites for Teleport capacity. We

believe this new capacity will allow NWT to win new business offering a discounted

price, while driving a material volume uplift (Jabiru-2 adds ~38% to NWT's Teleport

capacity).

■ AUD:USD assumptions reduced with Credit Suisse house forecasts for FY14

and FY15: We have revised our FX assumptions for the AUD;USD. Given that Jabiru-

1 contracts and revenues are based in US dollars (as are satellite construction costs

and ECA debt) currency has a meaningful impact on our NWT forecasts. We now

assume a long term AUD/USD of 0.85 from December 2015-15 onwards (0.90

previously). This drives an 11% EBITDA upgrade in FY16E and an 8% EBITDA

upgrade in FY17E.

■ Capex timing delayed to reflect draw down of ECA funding: Our prior forecasts

(set before the FY13 result) had assumed a much higher capex funding in FY13

(actual FY13 cash capex was ~$30mn vs. our forecast of $123mn). The delayed

capex now lands in FY15 given the ECA funding is only expected to be drawn from

January 20-114.

■ Core Jabiru-1 assumptions left unchanged: Our core assumptions for Jairu-1 have

been left unchanged. This includes 60% utilisation from pre sales, and we expect

utilisation to reach 80% three years after launch. We also assume pre-sales Ka band

capacity is priced at US$1mn/TPE/p.a. for the first five years before resetting to a

market price of ~US$1.3mn/TPE/p.a., and Jabiru-1 EBTIDA margins at 75%-80%.

07 February 2014

Global Satellite 58

Figure 68: Earnings changes for NWT

Old New %chg Old New %chg Old New %chg Old New %chg

Sale of Goods 1.9 1.8 -8.2% 2.2 2.5 11.2% 2.2 2.6 16.9% 2.3 2.8 22.9%

Rendering of services 47.6 36.3 -23.7% 54.2 50.2 -7.5% 55.0 53.5 -2.8% 55.8 57.0 2.2%

Total sales income 49.5 38.1 -23.1% 56.4 52.6 -6.8% 150.4 155.1 3.2% 230.7 243.4 5.5%

Cost of Sales -29.9 -24.6 -17.6% -31.5 -30.0 -5.0% -76.2 -77.0 1.1% -78.4 -81.8 4.3%

Gross Profit 19.7 13.5 -31.4% 24.9 22.7 -9.0% 74.2 78.2 5.4% 152.3 161.6 6.1%

Operating Costs -15.7 -13.4 -14.5% -17.3 -14.8 -14.4% -19.4 -17.4 -10.6% -21.3 -19.7 -7.6%

EBITDA 3.9 0.0 -98.8% 7.6 7.9 3.3% 54.7 60.8 11.0% 131.0 141.9 8.4%

Depreciation and amort 1.5 1.2 -18.6% 1.5 1.3 -17.8% 42.8 42.5 -0.6% 44.3 44.0 -0.6%

EBIT 2.4 -1.2 -149.1% 6.1 6.6 8.6% 12.0 18.3 52.4% 86.7 97.9 12.9%

Net Interest expense -1.1 -1.0 -17.0% -0.7 -0.8 12.2% 6.1 6.3 4.0% 11.1 11.5 4.2%

Tax expense 1.1 -0.1 -106.5% 2.0 2.2 9.0% 1.8 3.6 102.9% 22.7 25.9 14.2%

...Effective tax rate (%) 30% 30% 30% 30% 30% 30% 30% 30%

Normalised NPAT 2.5 -0.2 -106.5% 4.8 5.2 9.0% 4.1 8.3 102.9% 52.9 60.4 14.2%

EPS (cps) 0.4 0.0 -106.3% 0.7 0.7 2.0% 0.6 1.2 90.1% 8.0 8.5 7.1%

Cash Flow

Operating Cash Flow 4.9 -3.7 -175.1% 6.0 6.4 7.7% 42.3 46.1 9.2% 96.9 104.4 7.7%

Capex - Total 222.4 221.5 -0.4% 222.6 342.2 53.7% 4.5 4.7 3.2% 6.9 7.3 5.5%

…PP&E 1.5 1.1 -23.1% 1.7 1.6 -6.8% 4.5 4.7 3.2% 6.9 7.3 5.5%

…Project Development 220.9 220.3 -0.3% 220.9 340.6 54.2% 0.0 0.0 0.0 0.0

Free Cash Flow -217.5 -225.1 3.5% -216.6 -335.8 55.0% 37.7 41.5 9.9% 90.0 97.1 7.8%

Cash 81.8 87.4 6.9% 42.4 59.3 39.8% 42.1 59.2 40.6% 36.9 49.8 34.9%

Net Debt 228.8 123.9 -45.9% 459.8 462.6 0.6% 421.2 431.4 2.4% 331.2 334.3 0.9%

Earnings Changes FY14e FY15e FY16e FY17e


NewSat—Valuation and investment view

Our core DCF valuation of NWT has increased to $0.87ps from $0.80ps (13.75% Ke

with a 1.50 equity beta 1.50): We have taken a conservative view on our NWT cost of

capital employing an equity beta of 1.50, materially above peers ranging from 0.60–1.20.

Our beta is set to ensure our target NWT EV/EBITDA in the early years of Jabiru-1

operation is consistent with peers at 7x–8x. However Jabiru-1 will have a much higher

EBITDA growth rate than peers in its first five years of operation as utilisation ramps up

and discounted pre-sales contracts roll off. We therefore view our 1.50 equity beta as very

conservative. Our core valuation using this 1.50 equity beta (13.75% cost of equity) and an

equity cash flow DCF is $0.87ps.

■ Key assumptions underpinning our core DCF: We assume pre-sales of 60% at a

25%–30% discount to spot (US$1mn/TPE/p.a.) with an average contract life of 5.5

years. We assume three years to reach 80% utilisation and spot pricing of

US$1.3mn/TPE/p.a. with 0.5% p.a. price inflation. Our opex of ~$220k/TPE/p.a. with

our pricing assumptions leads to EBITDA margins ranging from 70%–79% for the

Jabiru-1 project. We note this valuation is a 12-month forward DCF and rises to

$1.02ps by the time of launch (on a 12-month forward basis).

■ Our core DCF valuation has increased to $0.87ps from $0.80ps reflecting 1) DCF

roll forward of +5cps; 2) Long- term AUD/USD assumption reduced to 0.85 from 0.90

adding +7cps; 3) Delays to capex timing adds +1cps; and 4) -6cps dilution impact from

October 2013 issue of 13mn shares to Orbital in addition to other dilutive instruments

issued over the last six months.

07 February 2014

Global Satellite 59

Our more optimistic NWT valuation is $1.19ps but still includes no upside for the

Jabiru 3 or 4 projects: Our more bullish case adopts slightly higher spot pricing

(US$1.4mn/TPE/p.a.) leading to 75%–80% EBITDA margins. We also reduce our equity

beta to 1.20 under this scenario in line with the upper end of peers. We still include no

upside for Jabiru 3 or 4 satellites. These more optimistic valuation assumptions lead us to a

$1.19ps valuation on a 12-month forward basis. Rolling forward to launch date would see

this more optimistic valuation increase to $1.44ps.

Downside scenario with discounted pricing to fill Jabiru-1 is valued at $0.60ps: We

have run four downside cases. The most likely of the downside cases in our view is that

NWT has to discount pricing to get Jabiru-1 sales away. Under this scenario, we assume

long-term pricing of US$1mn/TPE/p.a. which is 25% below our US$1.3mn/TPE/p.a. base

case spot pricing. We assume utilisation still reaches 80% three years after launch,

however EBITDA margins only reach 73%. This leads to our $0.60ps valuation (equity

beta 1.50ps).

Probability of launch failure very low using Ariane5 launch vehicle. However this is

the most bearish scenario: Using the Ariane5 launcher, we believe launch failure risk is

<2%. However, in this unlikely (in our view) event, we expect launch insurance to cover

the ECA lenders and standby facility (up to US$425mn). This still leaves the business with

$30mn of mezzanine debt and a number of dilutive warrants in place that dilute the

remaining value of the Teleports business. For this scenario, we assume re-launch is not

attempted as it would require additional equity. We have not included a value on the eight

orbital slots. We value this scenario at $0.01ps.

We believe M&A places a floor under NWT value in the event that NWT is not

successful in filling the satellite: Earlier in this Industry report, we highlight

consolidation in the satellite sector as being likely to continue. With Jabiru-1 located in an

attractive high growth region, we believe M&A activity from the larger operators provides a

floor value under NWT in the event that NWT is struggling to fill capacity.

Target price upgrade to $0.74 from $0.69. Our target price upgrade is consistent with

the upgrade to our core DCF valuation as discussed above. We set our NWT target price

using six valuation scenarios (four of which have been discussed above). We apply a 70%

probability to our base case valuation, 5% to our bull case and a very conservative 25% to

our range of bear case scenarios (see Figure 69). We believe as NWT moves closer to

launch with more omitted pre-sales the investment case will de-risk resulting in

modification to the risk weighting of our various scenarios.

Maintain OUTPERFORM rating: Significant upside in NWT. Share price implies an

overly bearish J-1 result: The current NWT share price implies that J-1 utilisation only

reaches 60% and price is discounted 15% –below spot. We think this is overly bearish

given NWT has already pre-sold 46% of Year 1–3 capacity and that we expect demand

growth is expected to be 4.5%–9% p.a. to 2016E in J-1 regions. Our 12-month forward

base case DCF of $0.87ps suggests ~78% potential upside employing a conservative 1.50

equity beta (13.75% Ke). Our $0.74ps TP is a risk weighting of six scenarios. Our more

optimistic 12-month forward valuation is $1.19ps and still ignores upside for satellites

beyond J-1.

07 February 2014

Global Satellite 60

Figure 69: Credit Suisse risk weighted target price for NWT

Risk Weighted Target Price (12mth fwd)Equity

A$m

Shares

(mn)

A$ per

share

WeightNotes

Teleports & Corp O'head (ex Cash) 34.0

Jabiru 1 582.3 Jabiru 1 replaced in 2030 for $710m ($35m NPV)

Base Case. Succesful launch 616.3 706.8 0.87 70.0% Spot US$1.3m/TPE @ 80% Fill 70%-76% EBITDA.


Jabiru 1 804.4 Jabiru 1 replaced in 2030 for $710m ($35m NPV)

Jabiru 3 & 4

Bull Case. Successful Launch (beta reduced to 1.2)838.4 706.8 1.19 5.0% Spot US$1.4m/TPE @ 80% Fill 75%-80% EBITDA.


Jabiru 1 382.1 Jabiru 1 replaced not replaced in 2030

Value of Orbital slots & Jabiru Ground Equipment

Bear Case 1. High utilisation but low price 416.1 689.3 0.60 7.5% Spot US$1m/TPE @ 80% Fill. 73% EBITDA.


Jabiru 1 250.5 Jabiru 1 replaced not replaced in 2030


Bear Case 1. Low utilisation and low price 284.5 722.4 0.39 7.5% Spot US$1m/TPE @ 60% Fill. 65% EBITDA.


Jabiru 1 164.3 Sale @ 150% of book value in 2H17 + Cash - Debt


Bear Case 2. Launch but cant sell capacity. 198.3 722.4 0.27 5.0% Asset sale at $2.4m/TPE well below other M&A


Jabiru 1 -26.6 Jabiru 1 Insurance proceeds + Cash - Debt (NPV)


Bear case 3. Launch failure 7.4 722.4 0.01 5.0% Launch failure and no re-attempt

ESG risk for area of operation & exposure to govt (-2.5%) -0.02

Probability Weighted Target Price (12mth) 523.9 708.2 0.74 100% Source: Company data, Credit Suisse estimates

Key catalysts

■ Signing up pre-sales customers progressively over the next 18 months will see a

number of announcements over this period. We note that the US government only

purchases capacity on 12- month contracts hence, this will delay many contract

discussion into FY15.

■ Regional pricing trends and pre-sales price discounts: Pricing is a material driver

of value for NWT. We therefore will be focusing on pricing trends in the region and

looking for a slowly increasing pre-sales contract discount.

■ Jabiru-2 payload launch on MEASAT 3b in March-2014.

■ Jabiru 3 and 4 funding and timing plans could be announced in 2014.

■ Jabiru-1 launch expected in French Guinea in mid-2015.

07 February 2014

Global Satellite 61

Figure 70: NWT Income Statement and Jabiru-1 operating assumptions Consolidated P&L (A$mn) FY10 FY11 FY12 FY13F FY14F FY15F FY16F FY17F FY18F FY19F FY20F FY21F FY22F FY23F

Sale of Goods 1.1 2.0 2.2 1.1 1.8 2.5 2.6 2.8 2.9 3.0 3.1 3.2 3.3 3.3

Rendering of services 23.1 26.2 34.9 38.0 36.3 50.2 53.5 57.0 59.8 62.1 64.0 65.5 66.7 67.7

Govt. Grants 0.7 0.5 - - - - - - - - - - - -

Satellite Development - - - - - - 99.0 183.6 205.5 224.8 227.9 241.2 281.1 282.4

Revenues from operating activities 25.0 28.7 37.2 39.2 38.1 52.6 155.1 243.4 268.3 290.0 295.0 309.8 351.1 353.4

Other income - - - - - - - - - - - - - -

Total revenues 25.0 28.7 37.2 39.2 38.1 52.6 155.1 243.4 268.3 290.0 295.0 309.8 351.1 353.4

COGS -13.2 -15.9 -21.3 -23.2 -24.6 -30.0 -77.0 -81.8 -85.1 -87.9 -90.1 -92.2 -94.7 -96.3

Gross Profit 11.8 12.9 15.8 16.0 13.5 22.7 78.2 161.6 183.2 202.1 204.9 217.6 256.4 257.2

Total operating expenses -10.3 -11.1 -12.0 -12.6 -13.4 -14.8 -17.4 -19.7 -20.7 -21.5 -22.0 -22.7 -23.8 -24.2

EBITDA 1.5 1.8 3.8 3.4 0.0 7.9 60.8 141.9 162.5 180.5 182.9 194.9 232.5 233.0

Depreciation & Amortisation -1.5 -1.5 -1.6 -1.6 -1.2 -1.3 -42.5 -44.0 -45.5 -46.7 -47.6 -48.3 -49.1 -49.8

EBIT -0.1 0.3 2.2 1.8 -1.2 6.6 18.3 97.9 117.0 133.9 135.3 146.7 183.4 183.2

Net interest 0.1 0.1 0.1 0.1 1.0 0.8 -6.3 -11.5 -8.8 -5.8 -2.9 -0.1 1.3 2.4

Profit before tax 0.0 0.3 2.3 1.8 -0.2 7.4 11.9 86.3 108.2 128.1 132.4 146.6 184.7 185.6

Tax - - - - 0.1 -2.2 -3.6 -25.9 -32.5 -38.4 -39.7 -44.0 -55.4 -55.7

OEI - - - - - - - - - - - - - -

Normalised NPAT 0.0 0.3 2.3 1.8 -0.2 5.2 8.3 60.4 75.8 89.6 92.7 102.6 129.3 129.9

Key financials FY10 FY11 FY12 FY13F FY14F FY15F FY16F FY17F FY18F FY19F FY20F FY21F FY22F FY23F

EPS - basic (cps) 0.0 0.2 1.1 3.1 0.0 0.9 1.4 9.7 12.0 14.1 14.6 16.1 20.2 20.3

Normalised EPS - diluted (cps) 0.0 0.2 1.0 0.5 0.0 0.7 1.2 8.5 10.7 12.5 12.9 14.3 17.9 18.0

EPS growth -101% 50049% 477% -50% -105% -3184% 60% 623% 25% 17% 3% 10% 26% 0%

Diluted average shares 7,734.8 186.3 232.4 379.7 676.3 703.5 705.5 707.5 709.5 714.9 716.9 718.9 720.9 722.9

PER (x) 144283.1x 287.7x 49.9x 100.7x -2029.6x 65.8x 41.0x 5.7x 4.5x 3.9x 3.8x 3.4x 2.7x 2.7x

DPS (cps) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.8 6.3 6.5 7.1 9.0 9.0

Payout ratio (%) 0% 0% 0% 0% 0% 0% 0% 0% 26% 50% 50% 50% 50% 50%

Key operational financials FY10 FY11 FY12 FY13F FY14F FY15F FY16F FY17F FY18F FY19F FY20F FY21F FY22F FY23F

EBITDA margin (%) 5.9% 6.1% 10.2% 8.6% 0.1% 14.9% 39.2% 58.3% 60.6% 62.3% 62.0% 62.9% 66.2% 65.9%

EBIT margin (%) -0.2% 0.9% 5.9% 4.5% -3.1% 12.5% 11.8% 40.2% 43.6% 46.2% 45.9% 47.3% 52.3% 51.8%

NPAT margin (%) 0.1% 1.1% 6.1% 26.7% -0.4% 9.9% 5.4% 24.8% 28.2% 30.9% 31.4% 33.1% 36.8% 36.8%

Tax rate (%) 0.0% 0.0% 0.0% 0.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0%

EBITDA growth (%) -245.1% 18.3% 116.1% -11.1% -98.6% 16444.3% 673.0% 133.5% 14.5% 11.1% 1.3% 6.6% 19.3% 0.2%

EBIT growth (%) -97.9% -546.4% 774.0% -19.8% -167.5% -658.2% 176.5% 436.1% 19.6% 14.4% 1.0% 8.4% 25.1% -0.1%

NPAT growth (%) -100.9% 1107.7% 619.4% 362.5% -101.5% -3307.5% 60.8% 625.0% 25.4% 18.3% 3.4% 10.7% 26.0% 0.5%

Jabiru -1 Operating Assumptions FY10 FY11 FY12 FY13F FY14F FY15F FY16F FY17F FY18F FY19F FY20F FY21F FY22F FY23F

Revenue (A$mn) - 99.0 183.6 205.5 224.8 227.9 241.2 281.1 282.4

EBITDA (A$mn) - 52.3 132.9 153.2 171.1 173.4 185.4 223.1 223.6

EBITDA margin (%) 52.8% 72.4% 74.6% 76.1% 76.1% 76.9% 79.4% 79.2%

Revenue per transponder (US$mn/TPE/p.a.)

Ka band pre sales - 0.99 0.99 0.99 0.99 0.99 0.99 - -

Ka band Spot - 1.31 1.31 1.32 1.33 1.33 1.34 1.35 1.35

Ka band (blended) - US$mn/TPE/p.a. - 0.69 1.02 1.05 1.07 1.08 1.14 1.35 1.35

KU & S band US$m/TPE - 0.67 0.67 0.67 0.67 0.67 0.67 0.67 0.67

Blended ARPTE US$m/TPE/p.a. - 0.66 0.98 1.01 1.03 1.04 1.10 1.28 1.28

Blended ARPTE A$m/TPE/p.a. - 0.77 1.15 1.19 1.21 1.22 1.29 1.50 1.51

Utilisation (%)

Ka band pre-sales 0.0% 60.0% 60.0% 60.0% 60.0% 60.0% 0.0% 0.0% 0.0%

Ka band post sales 0.0% 1.7% 8.3% 15.0% 20.0% 20.0% 80.0% 80.0% 80.0%

Ka band utilisation 0.0% 61.7% 68.3% 75.0% 80.0% 80.0% 80.0% 80.0% 80.0%

Ku and S band 0.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Blended Utilisation (%) 0.0% 64.8% 71.0% 77.1% 81.7% 81.7% 81.7% 81.7% 81.7%

Opex Analysis (A$000/TPE/p.a.)

COGS / TPE na 195.3 205.5 210.2 214.8 218.0 222.2 228.8 232.1

Opex / TPE na 8.6 16.0 17.9 19.6 19.9 21.1 24.6 24.7

Total Cost (A$000/TPE/p.a.) na 204.0 221.5 228.1 234.4 237.9 243.3 253.4 256.8

o/w

..Variable na 28.4 42.4 45.5 48.1 47.8 49.4 55.6 55.0

..Fixed na 175.5 179.1 182.7 186.3 190.1 193.9 197.8 201.8 Source: Company data, Credit Suisse estimates

07 February 2014

Global Satellite 62

Figure 71: Cash flow and balance sheet Cashflows (A$mn) FY10 FY11 FY12 FY13F FY14F FY15F FY16F FY17F FY18F FY19F FY20F FY21F FY22F FY23F

Receipts from customers 24.6 26.7 38.2 41.1 38.1 52.6 155.1 243.4 268.3 290.0 295.0 309.8 351.1 353.4

Payments to suppliers and employees -22.7 -25.9 -33.4 -34.7 -38.1 -44.8 -94.4 -101.5 -105.8 -109.5 -112.1 -114.9 -118.5 -120.4

Interest received 0.1 0.1 0.1 0.1 1.0 0.8 0.6 0.6 0.6 0.7 0.6 0.5 1.3 2.4

Interest paid - -0.0 -0.0 -0.0 - - -7.0 -12.1 -9.3 -6.5 -3.5 -0.6 - -

Income tax paid - - - - -0.1 -0.8 5.8 -22.7 -29.2 -35.8 -39.5 -40.0 -51.6 -55.5

Other (working capital and associates) 0.1 - - - -4.6 -1.5 -14.1 -3.3 -3.1 -2.2 0.6 -3.7 -3.8 0.4

Net cashflows from operating activities 2.2 0.9 4.9 6.5 -3.7 6.4 46.1 104.4 121.4 136.7 141.1 151.1 178.4 180.3

Capex -2.8 -9.1 -38.3 -30.2 -221.5 -342.2 -4.7 -7.3 -8.0 -8.7 -8.8 -9.3 -10.5 -10.6

Other investing cashflows - - - 0.0 - - - - - - - - - -

Net cashflows from investing activities -2.8 -9.1 -38.3 -30.2 -221.5 -342.2 -4.7 -7.3 -8.0 -8.7 -8.8 -9.3 -10.5 -10.6

Procees from issues of shares 3.9 6.2 28.8 96.9 6.4 - - - - - - - - -

Proceeds from borrowings - 3.7 5.8 39.0 177.5 304.0 - - - - - - - -

Repayment of borrowings - - - -6.3 - -0.1 -18.9 -43.8 -56.6 -63.4 -63.4 -31.9 - -

ECA Cash sweep - - - - - - -24.7 -62.6 -33.4 -38.0 -40.5 -21.7 - -

Payment of dividends - - - - - - - - - -37.1 -40.9 -41.4 -53.4 -57.5

Other financing cashflows -0.2 -1.1 -3.0 -9.2 - - - - - - - - - -

Net cashflows from financing activities 3.7 8.8 31.6 120.4 183.9 303.9 -43.5 -106.4 -90.0 -138.5 -144.8 -95.0 -53.4 -57.5

Net decrease/increase in cash held 3.0 0.6 -1.8 96.7 -41.2 -31.8 -2.0 -9.4 23.4 -10.5 -12.5 46.8 114.5 112.2

Add opening cash brought forward 1.9 5.0 5.5 3.8 112.8 87.4 59.3 59.2 49.8 73.2 62.7 50.2 97.0 211.5

Net effect of exchange rate changes - - - 12.3 15.8 3.7 2.0 - - - - - - -

Closing cash carried forward 5.0 5.5 3.8 112.8 87.4 59.3 59.2 49.8 73.2 62.7 50.2 97.0 211.5 323.7

- - - - - - - - - - - - - -

Balance Sheet (A$m) FY10 FY11 FY12 FY13F FY14F FY15F FY16F FY17F FY18F FY19F FY20F FY21F FY22F FY23F

Cash 5.0 5.5 3.8 112.8 87.4 59.3 59.2 49.8 73.2 62.7 50.2 97.0 211.5 323.7

Receivables 3.8 5.5 6.3 4.7 6.1 8.4 35.3 39.2 43.1 46.0 46.4 50.7 55.2 55.6

Inventories 0.9 0.5 0.5 0.5 0.6 0.6 1.7 1.8 1.8 1.9 1.9 2.0 2.0 2.1

Other current assets 1.2 2.2 3.9 6.7 6.7 6.7 6.7 6.7 6.7 6.7 6.7 6.7 6.7 6.7

Current assets 10.9 13.7 14.5 124.7 100.7 75.0 102.8 97.5 124.8 117.3 105.2 156.4 275.4 388.0

Plant & equipment 3.8 3.5 3.2 3.2 3.1 3.5 507.7 475.9 443.5 410.6 376.9 342.9 309.3 275.1

Deferred tax assets - - - - - - - - - - - - - -

Intangibles 10.3 22.1 65.7 125.9 346.2 686.8 144.7 139.7 134.7 129.7 124.7 119.7 114.7 109.7

Other assets 2.9 2.9 2.9 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2

Non-current assets 17.1 28.4 71.9 133.4 353.6 694.5 656.7 619.9 582.5 544.6 505.8 466.8 428.2 389.0

Assets 28.0 42.1 86.3 258.0 454.3 769.6 759.5 717.4 707.3 661.8 611.0 623.2 703.6 777.0

- - - - - - - - - - - - - -

Payables 6.2 7.1 7.6 12.3 9.1 10.1 23.8 24.5 25.3 26.2 27.1 27.8 28.5 29.3

Current debt - 0.0 3.5 0.0 0.1 18.4 43.8 56.6 63.4 63.4 31.9 - - -

Unearned revenue 2.7 3.9 5.5 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0

Other current liabilities 1.4 1.2 1.7 2.3 2.1 3.6 13.0 16.2 19.5 22.1 22.4 26.3 30.2 30.3

Current Liabiliities 10.3 12.3 18.3 19.6 16.3 37.1 85.6 102.4 113.2 116.7 86.4 59.2 63.7 64.7

Borrowings - 3.7 6.0 31.8 211.2 503.4 446.8 327.5 195.5 94.1 21.7 - - -

Other liabilities 0.2 0.2 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2

Non-current liabilities 0.2 3.9 6.1 32.0 211.4 503.6 447.0 327.7 195.7 94.3 21.9 0.2 0.2 0.2

Liabilities 10.4 16.2 24.4 51.6 227.8 540.7 532.6 430.1 308.9 211.0 108.3 59.4 63.9 64.9

- - - - - - - - - - - - - -

Net Assets 17.6 25.9 61.9 206.4 226.5 228.8 226.9 287.3 398.4 450.9 502.7 563.8 639.7 712.1

Net Tangible Assets 7.2 3.9 -3.7 80.6 -119.7 -458.0 82.1 147.6 263.6 321.2 378.0 444.2 525.1 602.5

Contributed equity 125.8 131.4 162.0 265.6 272.0 272.0 272.0 272.0 302.0 302.0 302.0 302.0 302.0 302.0

Retained profits -110.9 -110.6 -108.3 -97.7 -84.0 -81.8 -83.7 -23.3 57.8 110.3 162.1 223.3 299.2 371.6

Reserves 2.6 5.1 8.3 38.6 38.6 38.6 38.6 38.6 38.6 38.6 38.6 38.6 38.6 38.6

Total Equity 17.6 25.9 61.9 206.4 226.5 228.8 226.9 287.3 398.4 450.9 502.7 563.8 639.7 712.1

Gearing FY10 FY11 FY12 FY13F FY14F FY15F FY16F FY17F FY18F FY19F FY20F FY21F FY22F FY23F

Net Debt -5.0 -1.8 5.8 -81.0 123.9 462.6 431.4 334.3 185.6 94.8 3.4 -97.0 -211.5 -323.7

Net Debt / (Equity+Net Debt) (%) -39.4% -7.4% 8.5% -64.5% 35.4% 66.9% 65.5% 53.8% 31.8% 17.4% 0.7% -20.8% -49.4% -83.3%

Interest cover (x) (EBIT) 0.7x -3.9x -29.5x -23.1x 1.2x -8.2x 2.9x 8.5x 13.3x 23.0x 47.3x 1564.5x -144.1x -76.2x


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Appendix 1—PEERs maps PEERs is a global database that captures unique information about companies within the

Credit Suisse coverage universe based on their relationships with other companies – their

customers, suppliers and competitors. The database is built from our research analysts’

insight regarding these relationships. Credit Suisse covers over 3,000 companies globally.

These companies form the core of the PEERs database, but it also includes relationships

on stocks that are not under coverage.

Figure 72: SES PEERS

Source: Credit Suisse PEERs

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Figure 73: Eutelsat PEERS

Source: Credit Suisse PEERs

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Figure 74: Inmarsat PEERS


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Appendix 2—Credit Suisse HOLT® Figure 75: Eutelsat HOLT analysis

Source: Company data, Credit Suisse estimates, Credit Suisse HOLT, NOTE: The HOLT valuation based on our 8 years of published financials

suggests a HOLT warranted value of Eur 19.9. If the company beats the fade for another two years (expressing a forecast window of 10years)

and maintains the returns of the last forecasted year, the HOLT valuation rises to Eur 23.6, in line with our target price.

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Figure 76: SES HOLT analysis

Source: Company data, Credit Suisse estimates, Credit Suisse HOLT. NOTE: The HOLT valuation based on our 3 years of published financials

suggests a HOLT warranted value of Eur20.2. If the company beats the fade for another seven years (expressing a forecast window of 10years)

and maintains the returns of the last forecasted year, the HOLT valuation rises to Eur 27.00, in line with our target price.

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Figure 77: Inmarsat HOLT analysis

Source: Company data, Credit Suisse estimates, Credit Suisse HOLT. NOTE: The HOLT valuation based on our 8 years of published financials

suggests a HOLT warranted value of USD 9.2. If the company beats the fade for another seven years (expressing a forecast window of 15

years) and maintains the returns of the last forecasted year, the HOLT valuation rises to USD 14.0, in line with our target price.

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Figure 78: Newsat HOLT analysis

Source: Company data, Credit Suisse estimates, Credit Suisse HOLT. NOTE: The HOLT valuation based on our 20 years of published

financials suggests a HOLT warranted value of AUD 0.85

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Companies Mentioned (Price as of 04-Feb-2014)

BT Group (BT.L, 384.6p) British Sky Broadcasting (BSY.L, 877.0p) Eutelsat Communications (ETL.PA, €22.31, NEUTRAL, TP €23.0) Inmarsat PLC (ISA.L, 693.0p, OUTPERFORM, TP 800.0p) Intelsat S.A. (I.N, $19.46, NEUTRAL[V], TP $25.0) NewSat Limited (NWT.AX, A$0.46, OUTPERFORM[V], TP A$0.74) SES (SESFd.PA, €24.1, OUTPERFORM, TP €27.0)

Disclosure Appendix

Important Global Disclosures

The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for Eutelsat Communications (ETL.PA)

ETL.PA Closing Price Target Price

Date (€) (€) Rating

06-Jun-11 30.42 33.00 O

04-Jul-11 30.90 33.00 N

14-Sep-11 30.13 33.00 O

12-Jan-12 29.76 R

16-Jan-12 28.58 31.30 O

18-Jan-12 28.79 33.00

19-Apr-13 26.44 30.00

31-Jul-13 21.02 R

* Asterisk signifies initiation or assumption of coverage. O U T PERFO RM

N EU T RA L

REST RICT ED

3-Year Price and Rating History for Inmarsat PLC (ISA.L)

ISA.L Closing Price Target Price

Date (p) (p) Rating

25-Mar-11 603.50 720.00 O

11-Apr-12 425.20 640.00

14-Sep-12 594.00 700.00

19-Apr-13 689.00 800.00

* Asterisk signifies initiation or assumption of coverage.

O U T PERFO RM

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3-Year Price and Rating History for Intelsat S.A. (I.N)

I.N Closing Price Target Price

Date (US$) (US$) Rating

28-May-13 24.19 25.00 N *

27-Sep-13 24.33 R

31-Oct-13 20.60 24.75 N

01-Nov-13 20.45 25.00


N EU T RA L

REST RICT ED

3-Year Price and Rating History for NewSat Limited (NWT.AX)

NWT.AX Closing Price Target Price

Date (A$) (A$) Rating

04-Jul-13 0.40 0.69 O *


O U T PERFO RM

3-Year Price and Rating History for SES (SESFd.PA)

SESFd.PA Closing Price Target Price

Date (€) (€) Rating

18-Jan-12 18.16 20.00 N

14-Sep-12 20.75 24.00 O

19-Apr-13 23.14 27.00


N EU T RA L

O U T PERFO RM

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.

Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.

Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive , and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; Australia, New Zealand are, and prior to 2nd

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October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:

Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.

Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.

*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst ma y cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 43% (54% banking clients)

Neutral/Hold* 40% (48% banking clients)

Underperform/Sell* 14% (43% banking clients)

Restricted 2%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.

Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research and analytics/disclaimer/managing_conflicts_disclaimer.html

Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

Price Target: (12 months) for NewSat Limited (NWT.AX)

Method: Our risk weighted target price of $0.74 for NewSat comprises six valuation scenarios including 1) Base case ($0.87 x 70%) which represents a conservative operating case of the satellite being successfully launched and then filled over a 3 year period with modest price assumptions; 2) Bull case ($1.19 x 5%) with increased spot pricing from US$1.3mn/TPE/p.a. to US$1.4mn/TPE/p.a., opex 10% below base case and a reduced equity beta to 1.20. We still ascribe no value to Jabiru 3 or 4 in this bull case. 3) Bear case 1 ($0.60 x

7.5%) – operate at 80% utilisation with discounted pricing of US$1mn/TPE/p.a. (25% below our base case) for Ka band. 4) Bear case 2

($0.39 x 7.5%) – We assume that Jabiru 1 sales efforts are not particularly successful and utilisation only reaches 60% with discounted

pricing of US$1mn/TPE/p.a. (25% below our base case). We then assume the satellite is not replaced at end of life in 2030. 5) Bear case

3 ($0.27 x 5%) – sell Jabiru 1 in Year 2 of operation or 150% of book value. This scenario assumes that NWT suffers serious problems in

selling satellite capacity and M&A appetite for the asset is low. 6) Bear case 4 ($0.01 x 5%) – launch failure with no re-launch. Under this

scenario launch insurance would pay out for the cost of the satellite, launch vehicle and capitalised interest of ~US$400mn. This would cover the US$400mn in ECA debt facilities.We have ascribed no value to the orbital slots or additional teleport equipment installed to support Jabiru under this scenario. Re-launching the satellite could require some additional equity under this scenario. So we have not assumed a re-attempt of launch.

Risk: The key risks to our $0.74 target price for NewSat are: 1) that NWT suffers launch failure in 2015 (we see this is a very low probability event given the track record of Arianespace; 2) NWT experiences difficulties selling capacity which results in lower than expected pricing, utilisation or both. 3) In-orbit degredation to operating performance. We note that Lockheed Martin's A2100 satellite has not had any in-orbit anomalies since 2004. 4) Funding risks. With the Jabiru-1 project now funded (pending export credit finalisation) we beleive funding risks for Jabiru-1 are low. 5) Management execution risks: NWT has secured a highly experienced senior mangement with a highly

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incentive driven remuneration structure tied to the creation of NWT shareholder value (incentives linked to launch of J-1 and NWT share price).

Price Target: (12 months) for Eutelsat Communications (ETL.PA)

Method: Our target price for Eutelsat is based on a DCF valuation with 7.0% WACC and a 2% terminal growth rate.

Risk: We see downside risks for our estimates from possible satellite launch delays and from slower than expected take-up of Eutelsat's capacity in Africa, middle east and Latin America.

Price Target: (12 months) for Intelsat S.A. (I.N)

Method: Our $25 target price on Intelsat is based on a multi year discounted DCF assuming a 9.1% WACC and 1.2% terminal growth rate. Our 9.1% WACC is based on a 6% cost of debt (excluding tax shield) and a 9.5% Equity Risk Premium. We further apply a 15% minority discount to reflect the lack of control over cash flow as a minority shareholder.

Risk: Risks to our $25 target price on Intelsat are on the downside, larger than expected impact to Intelsat's on-network revenues from cuts to the US defense budget as this poses a downside risk to our equity FCF forecasts and reduce our discounted DCF target price. Furthermore we see downside risk to our target price from satellite launch and in-orbit failures as this also would put pressure on our equity FCF forecasts and discounted DCF valuation. Upside risks comes mainly from Intelsat managing to sell more of its existing unused satellite transponder capacity generating more high margin revenues than we currently incorporate in our forecast and would provide upside to our equity FCF and discounted FCF valuation.

Price Target: (12 months) for SES (SESFd.PA)

Method: We value SES using a discounted DCF with a 10% discount to address the lack of control of cash flows as a minority shareholder. We further use a WACC of 7.1%. Terminal growth of 2% to address the fact that we see strong demand going forward, from new developing markets and new technologies, with increasing demand for bandwidth such as a more widespread demand for HDTV and in longer-term 3DTV. We use the Western European average ERP of 5.5%.

Risk: Main risks to target price we see as technical issues with existing satellites and failure during launch of new satellites. Eutelsat is launching another 6 satellites in 2011 increasing risk, in our view

Price Target: (12 months) for Inmarsat PLC (ISA.L)

Method: We derive our price target of 800p from our 10-year DCF on our published forecasts excluding all payments from Lightsquared. We continue to use a 10 year DCF with a WACC of 9.1% using a perpetuity growth rate of 1.0%. Within this DCF calculation we normalise the CAPEX of Inmarsat given that it tends to be concentrated in 2-3 year periods coinciding with a new satellite constellation upgrade. We use only base case assumptions in our DCF and see substantial upside on the successful launch of new products going forward.

Risk: The main risks to our target price are a major downturn in the maritime industry due to a much worsening economy or a further lengthy delay to the Satphone business launch.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names

The subject company (NWT.AX, ETL.PA, I.N, ISA.L, BSY.L, BT.L) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.

Credit Suisse provided investment banking services to the subject company (NWT.AX, ETL.PA, I.N, BT.L) within the past 12 months.

Credit Suisse provided non-investment banking services to the subject company (BSY.L, BT.L) within the past 12 months

Credit Suisse has managed or co-managed a public offering of securities for the subject company (NWT.AX, I.N) within the past 12 months.

Credit Suisse has received investment banking related compensation from the subject company (NWT.AX, ETL.PA, I.N, BT.L) within the past 12 months

Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (NWT.AX, ETL.PA, I.N, ISA.L, BT.L) within the next 3 months.

Credit Suisse has received compensation for products and services other than investment banking services from the subject company (BSY.L, BT.L) within the past 12 months

As of the date of this report, Credit Suisse makes a market in the following subject companies (I.N).

As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (NWT.AX, ETL.PA).

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Credit Suisse has a material conflict of interest with the subject company (ETL.PA) . Credit Suisse is acting as financial advisor to Satelites Mexicanos SA on their announced acquisition by Eutelsat Communications SA.

Important Regional Disclosures

Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.

The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (NWT.AX, ETL.PA, I.N, SESFd.PA, ISA.L, BSY.L, BT.L) within the past 12 months

Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.

Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.

For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml.

Credit Suisse Securities (Europe) Limited (Credit Suisse) acts as broker to (ISA.L).

The following disclosed European company/ies have estimates that comply with IFRS: (ISA.L, BSY.L, BT.L).

Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (NWT.AX, ETL.PA, I.N, ISA.L) within the past 3 years.

As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.

Principal is not guaranteed in the case of equities because equity prices are variable.

Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Credit Suisse Equities (Australia) Limited ..................................................................................................................................... Bradley Clibborn

Credit Suisse Securities (Europe) Limited........................................................................................................... Paul Sidney ; Francisco Sanches

Important Credit Suisse HOLT Disclosures

With respect to the analysis in this report based on the Credit Suisse HOLT methodology, Credit Suisse certifies that (1) the views expressed in this report accurately reflect the Credit Suisse HOLT methodology and (2) no part of the Firm’s compensation was, is, or will be directly related to the specific views disclosed in this report.

The Credit Suisse HOLT methodology does not assign ratings to a security. It is an analytical tool that involves use of a set of proprietary quantitative algorithms and warranted value calculations, collectively called the Credit Suisse HOLT valuation model, that are consistently applied to all the companies included in its database. Third-party data (including consensus earnings estimates) are systematically translated into a number of default algorithms available in the Credit Suisse HOLT valuation model. The source financial statement, pricing, and earnings data provided by outside data vendors are subject to quality control and may also be adjusted to more closely measure the underlying economics of firm performance. The adjustments provide consistency when analyzing a single company across time, or analyzing multiple companies across industries or national borders. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes the baseline valuation for a security, and a user then may adjust the default variables to produce alternative scenarios, any of which could occur.

Additional information about the Credit Suisse HOLT methodology is available on request.

The Credit Suisse HOLT methodology does not assign a price target to a security. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes a warranted price for a security, and as the third-party data are updated, the warranted price may also change. The default variable may also be adjusted to produce alternative warranted prices, any of which could occur.

CFROI®, HOLT, HOLTfolio, ValueSearch, AggreGator, Signal Flag and “Powered by HOLT” are trademarks or service marks or registered trademarks or registered service marks of Credit Suisse or its affiliates in the United States and other countries. HOLT is a corporate performance and valuation advisory service of Credit Suisse.

For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

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None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of CS. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of CS or its affiliates. The information, tools and material presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. CS may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. CS will not treat recipients of this report as its customers by virtue of their receiving this report. The investments and services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. CS does not advise on the tax consequences of investments and you are advised to contact an independent tax adviser. Please note in particular that the bases and levels of taxation may change. Information and opinions presented in this report have been obtained or derived from sources believed by CS to be reliable, but CS makes no representation as to their accuracy or completeness. 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CS may, to the extent permitted by law, participate or invest in financing transactions with the issuer(s) of the securities referred to in this report, perform services for or solicit business from such issuers, and/or have a position or holding, or other material interest, or effect transactions, in such securities or options thereon, or other investments related thereto. In addition, it may make markets in the securities mentioned in the material presented in this report. CS may have, within the last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or investment services in relation to the investment concerned or a related investment. Additional information is, subject to duties of confidentiality, available on request. Some investments referred to in this report will be offered solely by a single entity and in the case of some investments solely by CS, or an associate of CS or CS may be the only market maker in such investments. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original date of publication by CS and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Investors in securities such as ADR's, the values of which are influenced by currency volatility, effectively assume this risk. Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own investigation and analysis of the product and consult with their own professional advisers as to the risks involved in making such a purchase. Some investments discussed in this report may have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realised. Those losses may equal your original investment. Indeed, in the case of some investments the potential losses may exceed the amount of initial investment and, in such circumstances, you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield. Some investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed. This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of CS, CS has not reviewed any such site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to CS's own website material) is provided solely for your convenience and information and the content of any such website does not in any way form part of this document. Accessing such website or following such link through this report or CS's website shall be at your own risk. This report is issued and distributed in Europe (except Switzerland) by Credit Suisse Securities (Europe) Limited, One Cabot Square, London E14 4QJ, England, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. This report is being distributed in Germany by Credit Suisse Securities (Europe) Limited Niederlassung Frankfurt am Main regulated by the Bundesanstalt fuer Finanzdienstleistungsaufsicht ("BaFin"). This report is being distributed in the United States and Canada by Credit Suisse Securities (USA) LLC; in Switzerland by Credit Suisse AG; in Brazil by Banco de Investimentos Credit Suisse (Brasil) S.A or its affiliates; in Mexico by Banco Credit Suisse (México), S.A. (transactions related to the securities mentioned in this report will only be effected in compliance with applicable regulation); in Japan by Credit Suisse Securities (Japan) Limited, Financial Instruments Firm, Director-General of Kanto Local Finance Bureau (Kinsho) No. 66, a member of Japan Securities Dealers Association, The Financial Futures Association of Japan, Japan Investment Advisers Association, Type II Financial Instruments Firms Association; elsewhere in Asia/ Pacific by whichever of the following is the appropriately authorised entity in the relevant jurisdiction: Credit Suisse (Hong Kong) Limited, Credit Suisse Equities (Australia) Limited, Credit Suisse Securities (Thailand) Limited, having registered address at 990 Abdulrahim Place, 27 Floor, Unit 2701, Rama IV Road, Silom, Bangrak, Bangkok 10500, Thailand, Tel. +66 2614 6000, Credit Suisse Securities (Malaysia) Sdn Bhd, Credit Suisse AG, Singapore Branch, Credit Suisse Securities (India) Private Limited regulated by the Securities and Exchange Board of India (registration Nos. INB230970637; INF230970637; INB010970631; INF010970631), having registered address at 9th Floor, Ceejay House, Dr.A.B. Road, Worli, Mumbai - 18, India, T- +91-22 6777 3777, Credit Suisse Securities (Europe) Limited, Seoul Branch, Credit Suisse AG, Taipei Securities Branch, PT Credit Suisse Securities Indonesia, Credit Suisse Securities (Philippines ) Inc., and elsewhere in the world by the relevant authorised affiliate of the above. Research on Taiwanese securities produced by Credit Suisse AG, Taipei Securities Branch has been prepared by a registered Senior Business Person. Research provided to residents of Malaysia is authorised by the Head of Research for Credit Suisse Securities (Malaysia) Sdn Bhd, to whom they should direct any queries on +603 2723 2020. This report has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (each as defined under the Financial Advisers Regulations) only, and is also distributed by Credit Suisse AG, Singapore branch to overseas investors (as defined under the Financial Advisers Regulations). By virtue of your status as an institutional investor, accredited investor, expert investor or overseas investor, Credit Suisse AG, Singapore branch is exempted from complying with certain compliance requirements under the Financial Advisers Act, Chapter 110 of Singapore (the "FAA"), the Financial Advisers Regulations and the relevant Notices and Guidelines issued thereunder, in respect of any financial advisory service which Credit Suisse AG, Singapore branch may provide to you. This research may not conform to Canadian disclosure requirements. In jurisdictions where CS is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements. Non-U.S. customers wishing to effect a transaction should contact a CS entity in their local jurisdiction unless governing law permits otherwise. U.S. customers wishing to effect a transaction should do so only by contacting a representative at Credit Suisse Securities (USA) LLC in the U.S. Please note that this research was originally prepared and issued by CS for distribution to their market professional and institutional investor customers. Recipients who are not market professional or institutional investor customers of CS should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. This research may relate to investments or services of a person outside of the UK or to other matters which are not authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority or in respect of which the protections of the Prudential Regulation Authority and Financial Conduct Authority for private customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case are available upon request in respect of this report. CS may provide various services to US municipal entities or obligated persons ("municipalities"), including suggesting individual transactions or trades and entering into such transactions. Any services CS provides to municipalities are not viewed as "advice" within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. CS is providing any such services and related information solely on an arm's length basis and not as an advisor or fiduciary to the municipality. In connection with the provision of the any such services, there is no agreement, direct or indirect, between any municipality (including the officials, management, employees or agents thereof) and CS for CS to provide advice to the municipality. Municipalities should consult with their financial, accounting and legal advisors regarding any such services provided by CS. In addition, CS is not acting for direct or indirect compensation to solicit the municipality on behalf of an unaffiliated broker, dealer, municipal securities dealer, municipal advisor, or investment adviser for the purpose of obtaining or retaining an engagement by the municipality for or in connection with Municipal Financial Products, the issuance of municipal securities, or of an investment adviser to provide investment advisory services to or on behalf of the municipality. If this report is being distributed by a financial institution other than Credit Suisse AG, or its affiliates, that financial institution is solely responsible for distribution. Clients of that institution should contact that institution to effect a transaction in the securities mentioned in this report or require further information. This report does not constitute investment advice by Credit Suisse to the clients of the distributing financial institution, and neither Credit Suisse AG, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct or consequential loss arising from their use of this report or its content. Principal is not guaranteed. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

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Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments. When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.

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