On Friday, UBS downgraded SATS Ltd. (SATS:SP) (OTC: SPASF) stock from a Buy to a Neutral rating, while increasing the price target to SGD3.35 from SGD3.20. The adjustment reflects the stock’s performance, which has risen 16% year-to-date compared to the Straits Times Index’s (STI) 7% increase.
SATS now trades at 8 times its 1-year forward Enterprise Value/Earnings Before Interest, Taxes, Depreciation, and Amortization (EV/EBITDA), aligning with the average since September 2022.
According to UBS, the valuation of SATS is seen as fair at this level. The firm anticipates that the cost synergies from the integration of SATS with Worldwide Flight Services (WFS) will materialize slowly due to the limited geographical overlap between the two entities. Furthermore, the contract between Singapore Airlines (OTC:) (SIA) and SATS, though still substantial, now represents only 15-20% of SATS’s total group revenue, a reduction from the previous 30-40%.
Despite the downgrade, UBS acknowledges the positive aspects for SATS, highlighting the robust recovery in air travel and the rebound in air cargo. These factors contribute to the raised price target, even as the stock’s rating is adjusted to reflect its current market position.
SATS Ltd. is engaged in providing food solutions and gateway services solutions. The company operates through two segments: Food Solutions and Gateway Services. The firm’s performance is closely tied to the aviation industry, making the resurgence in air travel and cargo significant to its business prospects.
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