Eutelsat's LEO Play: The Cornerstone of European Technological Sovereignty

In the race to control the skies, Eutelsat is emerging as Europe's most critical player in the battle for technological sovereignty. By merging with OneWeb in 2023 and securing unprecedented government backing, the company has positioned itself as a linchpin of the EU's strategy to reduce reliance on U.S. space infrastructure like Starlink. With a $3.7 billion revenue backlog and ambitious plans to achieve global coverage by 2026, Eutelsat is now a must-watch play for investors betting on Europe's push for strategic autonomy.

The Geopolitical Imperative: Why Europe Needs Eutelsat

The merger of Eutelsat and OneWeb wasn't just a corporate deal—it was a geopolitical statement. Europe's dependence on U.S.-owned satellites for critical communications, defense, and internet access has long been a vulnerability. The conflict in Ukraine has underscored this: Eutelsat's OneWeb constellation provided critical connectivity to military and civilian users in regions cut off by Russian aggression.

The company's role in France's military modernization is central to its value. A 10-year framework agreement with the French Ministry of the Armed Forces (up to €1 billion) ensures steady revenue from defense contracts. Meanwhile, Eutelsat's participation in the EU's IRIS² program—a €2 billion initiative to build a sovereign multi-orbit satellite network—cements its position as a pillar of European strategic autonomy.

The Financial Engineering Fueling Ambition

To fund its ambitions, Eutelsat has executed a masterclass in capital structuring. By raising €1.35 billion through a reserved capital increase and rights issue by end-2025, the company is fortifying its balance sheet while maintaining French government influence (29.99% stake post-transaction). This avoids a single stakeholder gaining control, a strategic safeguard in politically charged sectors.

The proceeds will fund two critical initiatives:
1. LEO Expansion: A €2 billion Gen-1 follow-on program to deploy 340 additional satellites by 2028–29, enabling full global coverage by 2026.
2. Debt Refinancing: Reducing leverage to 2.5x by 2026–27, unlocking flexibility for capital market access and debt maturity extensions.

These moves align with near-term catalysts, including terminal rollouts in conflict zones and EU subsidy wins. LEO revenues are already growing at 50% YoY, outpacing market expectations, and the IRIS² funding (beginning in 2027–28) adds a multiyear tailwind.

Risks to the Story: Starlink's Shadow and Debt

The biggest threat remains Starlink's scale. With over 5,000 satellites already in orbit, SpaceX's constellation dwarfs Eutelsat's 650-strong OneWeb fleet. Starlink's cost advantages and first-mover advantage in consumer markets could limit Eutelsat's addressable niche.

Debt remains another concern. Though leverage is set to drop to 2.5x, the €1.0–€1.1 billion annual CapEx until 2028 will keep pressure on cash flow. Sanctions-related losses in Russia—a lingering overhang—also weigh on near-term margins.

The Investment Case: Valuation and Asymmetric Upside

Despite these risks, Eutelsat's valuation still offers asymmetric upside. The stock trades at a discount to its 2028–29 targets: €1.5–1.7 billion in revenue and a 60% EBITDA margin. With a backlog of €3.7 billion and government-backed demand, execution risk is mitigated.

Geopolitical tailwinds are accelerating: the EU's push for “sovereign connectivity” and Ukraine's reliance on Eutelsat's services create barriers to competition. Meanwhile, Starlink's dominance in consumer markets doesn't negate Eutelsat's role in B2G and defense—a sector where governments will pay premiums for control over data and infrastructure.

Final Take

Eutelsat is no longer just a satellite operator—it's a geopolitical asset. Its blend of government backing, strategic infrastructure, and disciplined capital management makes it uniquely positioned to capitalize on Europe's push for technological sovereignty. While Starlink's scale poses a long-term challenge, Eutelsat's near-term catalysts (defense contracts, IRIS² funding) and undemanding valuation justify a buy. Investors seeking exposure to Europe's tech independence play should look past near-term volatility and focus on the structural demand ahead.

Risk-Adjusted Rating: Buy