Investment bank Goldman Sachs has dramatically upgraded its view on Eutelsat’s prospects, from ‘Sell’ to ‘Neutral’. The bank admits that its previous advice to ‘Sell’ was “the wrong call”.

“With the recent EC announced proposal to establish a loan fund of up to €150bn to support European defence spend, Eutelsat shares have risen materially (c.+550% in March),” wrote Goldman Sachs. It has also uplifted its share price target, from €1 to €6.70. Eutelsat ended last week with a share price of €5.84 (and down €1.08 on the day).

“We materially underestimated the upside risk from government support,” Goldman Sachs wrote, noting that European governments’ stance on defence and satellite funding has shifted at a scale and speed that far exceeded expectations. “While there are still material uncertainties as to the potential revenue opportunity for Eutelsat, our Sell rating was the wrong call,” said the bank.

This shift is said to have significantly lowered debt costs for Eutelsat and amplified gains in the stock, given its high leverage.

Despite the upgrade, Goldman Sachs remains cautious on Eutelsat’s competitive risks, particularly from global satellite players such as Starlink. However, analysts now acknowledge that government spending has become the key swing factor in Eutelsat’s investment case, and they have adjusted their valuation approach accordingly.

However, while last week’s stock market rally for Eutelsat shares might not have been incorporated into their thinking, ratings agency Fitch has further downgraded Eutelsat’s debt ratings. Eutelsat’s Long-Term Issuer Default Rating (IDR) goes from ‘BB’ from ‘BB+’ and Eutelsat Communications S.A.’s IDR to ‘B’ from ‘B+’. The Outlooks on both grades of debt are Negative.

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Tags: eutelsat, fitch, Goldman Sachs