Private Investor: The satellite business that sent its shares into high orbit
Saturday 18 March 2006
It's funny how you can have your head turned. I'd read a bit about the recently floated satellite company Inmarsat and put it to the back of my mind when I found myself in Old Street in London to pick up a car from the Classic Car Club (who run a sort of time-share on old Rolls-Royces and Ferraris and the like). And there was this enormous obelisk-like building with the word "Inmarsat" emblazoned down the side. Ah, I thought, maybe this company is a bit more substantial than I thought.
Well, it was foolish of me to presume otherwise. The partial float of Inmarsat last year was the the biggest in two years, at £1bn. Its market cap is now £1.75bn and, while it would take another 50 per cent growth in that to see it into the FTSE 100 (other things being equal), it is still a "proper" business.
Originally, Inmarsat was part of the International Maritime Organisation (hence its name), an agency of the United Nations. Its strength is still in the more difficult end of the satellite communications market - maritime and military - and it seems to come into its own in times of war and natural disaster when other forms of telecoms are not available. It's also expanding its broadband coverage. So that's all the growth side of the business.
The yield side comes in about now in the life cycle of the satellite industry. Every 15 years or so, the company has to spend a fortune getting the satellites into the air; then it can just sit back and watch the money flow in, with big margins helping to ensure a decent return for investors of 5 per cent plus.
There are risks. Apart from the huge investment and the expertise Inmarsat has developed, there aren't that many other substantial barriers to entry, and there are other businesses in the field. Then there's the risk associated with operating such fancy technology. I don't know how difficult it is to fix a wonky satellite, but I hope that Inmarsat doesn't find itself having to do so very often.
There's also the risk that I really I don't understand this market quite as well as I should. It ought to be a warning sign that the shares have come on to the market via a placing by private equity groups, who have sold their stake down from 40 per cent to 25 per cent. However, the fact that they still have a chunk of the business ought to be encouraging. They have doubled their money, anyhow.
I saw that one fund manager described Inmarsat as being in roughly the same position as Vodafone was in in the early 1990s, so I suppose it's appropriate that I've used the proceeds of the sale of Vodafone to fund this purchase. By the way, I notice that the honorary president of Vodafone, Chris Gent, quit the day after my column last week condemning the play-pen activities of Vodafone execs. I don't think I tipped the balance, but it was an amusing coincidence at any rate.
Before closing, I can't help mentioning a small fragment from the undergrowth of the world of mutuality. According to the Hinckley & Rugby Building Society's summary financial statement, the society spent £613,000 on their board last year. That's against a profit for the society of £1.9m, or about one-third. The mighty Britannia Building Society, for example, spent more on its board - almost £2m - but not that much more considering that it made a profit of £32m last year and Britannia directors are responsible for assets of £32.4bn against the Hinckley's £649m.
The Hinckley chief executive, Barry Hunt, is paid £230,000, while Neville Richardson, the boss at Britannia - a much larger business, remember - gets not that much more; £603,000. Either Mr Hunt is very expensive or Mr Richardson is very cheap, you might think. I reckon they're both doing very nicely.
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