Inmarsat pens $1.2bn satellite deal ahead of broadband push

Inmarsat yesterday confirmed widespread rumours that it was set to upgrade its satellite network when it announced a $1.2bn (£757m) deal with Boeing ahead of an extended push into the broadband market.

The group also announced a 13.8 per cent increase in second-quarter earnings, as it promised that revenues would grow by as much as 7 per cent over the next four years, and increased the interim dividend by 10 per cent.

A new satellite deal had been widely expected by analysts, and worries over the additional capital expenditure had forced Inmarsat's shares down by 13 per cent in the last seven weeks.

The chief executive, Andrew Sukawaty, said: "The market was looking at the spend without considering what this deal would do for the company. Much of the financing will come from cashflow, and while there will be a debt element, we will not get above two and a half times Ebitda [underlying earnings] – one of the lowest leverage levels in the sector."

The group's shares closed the day up 4 per cent at 741.5p. Inmarsat is hoping the new infrastructure will enable it to expand broadband capacity for use on tablet computers as sales of the devices grow. It is also planning to have a tilt at $1.4bn worth of contracts from the US military, as well as cruise ships and aerospace groups.

Boeing will provide three high frequency Ka-band satellites by 2014. The deal will allow Inmarsat to move away from its traditional voice market, into the higher growth broadband sector.

"Broadband growth is a world phenomenon, and we are simply delivering that where other networks don't go, on land, sea and air," Mr Sukawaty said. "We have been in these remote areas for 31 years and it's natural for us to deliver this next-generation satellite system."

The deal was largely welcomed by the City. "There is execution risk, but in our view the recent share price weakness could reverse if investors start to pencil in Ebitda margins similar to existing levels (60 per cent) on new investment," said Mark James, an analyst at Liberum Capital.

Others said the deal with Boeing will strengthen Inmarsat's ties with the US government after Inmarsat said it had opted for a tie-up with the US aerospace group ahead of an offer from the French company, Thales Alenia Space.