Satellite Links for Air & Sea

03/29/2016 10:00 am EST

Focus: STOCKS

Most of us expect to be able to call a co-worker, text a friend and pull up a web page at any time. But in many places, data connections like the ones we use every day don’t exist, explains Jason Koepke in Capitalist Times.

INMARSAT (London: ISAT) — the International Maritime Satellite Organization — was founded in 1979 by the United Nations.

The goal was to create and operate a satellite network that would transmit distress signals and safety messages to ocean-going vessels. A few years later, INMARSAT received a similar commission for air traffic.

The process of privatizing INMARSAT began in the late 1990s and culminated with the company’s IPO on London Stock Exchange.

To this day, Inmarsat’s charter mandates that the firm provide the basic safety communications network for maritime and air traffic.

Inmarsat’s maritime, government and enterprise segments generate steady revenue and solid earnings growth that help to support a healthy dividend yield of 4 percent.

Although Inmarsat’s history is interesting, the company’s future is what matters to investors. And its aviation division resembles a high-flying tech play, with significant upside potential and operating margins that range from 80 percent to 90 percent.

Much of this opportunity set focuses on growing demand for high-speed Internet on commercial airplanes.

In addition, demand for safety-related communication services should also drive earnings upside for Inmarsat’s aviation division.

Almost all airlines rely on satellite systems for communications. But questions have emerged about whether existing regulatory requirements and best practices — such as sending a sign-of-life signal once an hour — are sufficient.

Malaysia Airlines Flight 370’s disappearance over the Indian Ocean in 2014 increased public scrutiny of these safety communication and regulatory and industry groups have been contemplating more frequent and data-rich communications to base stations via satellite systems.

This trend should prompt more airlines to opt for Inmarsat’s higher-priced service offerings, boosting the company’s bottom line.

Inmarsat stands to benefit from rapidly growing demand for in-flight connectivity, though potential weakness in some of its other business lines means that prospective investors should build their positions gradually.

Subscribe to Jason Koepke, Capitalist Times

By Jason Koepke in Capitalist Times

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