Broker snap: Inmarsat shares could pay off

Nomura has raised its 2011-2012 earnings forecasts for Inmarsat after the satellite operator's strong fourth quarter results, though the upgrade was largely to reflect the strengthening of the US dollar against the pound.

The broker has raised its target price for the stock from 700p to 875p, based on a discounted cash flow sum of the parts valuation, and reiterated its 'buy' recommendation.

'We remain bullish on Inmarsat's medium to long-term growth prospects driven by: i) continued strong uptake of [the] BGAN [satellite] across all three verticals, ii) the launch of handheld service this summer, and iii) in-flight mobile connectivity,' the broker said.

'We do also, based on the last few quarters' performance, now feel more reassured about the company's resilience to the economic downturn in general and its impact on the shipping industry in particular,' the Nomura research note added.

Inmarsat is scheduled to provide a new medium-term revenue growth outlook statement later this year as the five-year guidance range outlined at the time of the company's flotation in 2005 draws to a close. Nomura thinks this could prove a catalyst for the share price.

It also thinks that there may be good news in the offing for income investors with serious capital expenditure off the agenda for at least five years, until the next generation of satellites.

'The current policy is to pay "no less than 50% of normalise equity FCF [free cash flow] in dividend", but we do not see any real reason why Inmarsat can't pay up to at least 100% of normalised FCF or contemplate a special dividend. We would see it as quite natural with an update on shareholder remuneration coinciding with the medium-term growth outlook,' the broker opined.