Eutelsat Shares: JPMorgan Reverses Its Stance in Surprise Move

In a notable shift, JPMorgan has upgraded its rating for French satellite operator Eutelsat from “Underweight” to “Neutral.” This change coincides precisely with the launch of the company’s €670 million rights issue. However, the US bank simultaneously implemented a sharp reduction in its price target, cutting it to €1.90. This seemingly contradictory action is rooted in a stark financial reality.

The analysts justify their revised position by pointing to the stock’s dramatic 80 percent collapse since their initial downgrade in 2022, which was triggered by Eutelsat’s announcement of its plan to acquire OneWeb. They contend that following such a severe decline, the potential for further significant losses is now largely exhausted. While the planned €1.5 billion capital increase is seen as a move to stabilize the company’s financial structure, JPMorgan remains deeply skeptical. The bank continues to express doubts about Eutelsat’s Low Earth Orbit (LEO) strategy via OneWeb, questioning whether management’s forecasts for accelerated growth are achievable.

Financial Backing and Shareholder Dilution

The subscription period for the rights issue is set from November 28 to December 9. The terms are demanding, with new shares priced at €1.35 each. This represents a substantial 44.6 percent discount to the theoretical ex-rights price. The subscription ratio has been set at 8 new shares for every 11 existing shares held.

A significant portion of the offering has already been secured through commitments from major stakeholders. The French state, Bharti Space, the British government, CMA CGM Participations, and the Fonds Stratégique de Participations have collectively pledged to subscribe to €475 million of the issue, covering 71 percent of the volume. For shareholders who choose not to participate, the dilution will be severe; an investor holding a 1 percent stake will see their ownership reduced to just 0.58 percent after the capital increase.

A separate, reserved capital increase of €828 million was successfully completed earlier, on November 21. These new shares are currently in the process of being admitted for trading on the London Stock Exchange.

Should investors sell immediately? Or is it worth buying Eutelsat?

Strategic Goals and Major Investments

The primary objective of these substantial capital-raising activities is twofold: to accelerate the development of LEO satellite activities, including support for the future IRIS² constellation, and to enable a faster reduction of the company’s debt load.

Management has outlined several key financial targets:

• Achieving a leverage ratio of approximately 2.5x by the end of the 2025-26 financial year.
• Delivering LEO revenue growth of 50 percent in the current fiscal year.
• Executing investments totaling around €4 billion between 2026 and 2029.
• Securing an EBITDA margin of at least 60 percent by the 2028-29 period.

Upon the finalization of all capital measures, the ownership structure will see the French state hold 29.65 percent, Bharti Space own 17.88 percent, and the UK government retain a 10.89 percent stake. These major shareholders have committed to a 180-day lock-up period for their newly acquired shares.

Challenging Fundamental Metrics

Eutelsat’s current financial performance underscores the challenges it faces. The company reports a negative earnings per share of -€2.28, accompanied by a deeply negative profit margin of nearly 87 percent. Its market capitalization stands at approximately €1.35 billion, with annual revenue around €1.24 billion.

The share price is currently trading far below its 52-week high of €9.30 and is hovering just above its annual low of €1.15. The average price target among analysts is €3.42, more than double the current trading level. However, the ultimate verdict on whether the multi-billion euro LEO strategy will prove successful or become a costly misstep will only become clear in the years ahead.