Avanti Communications - target price 1p by Christmas

Comments

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   sdh

   5 February 2016, 08:13

   In the last 5 years this company has declared operating losses of $232.92 million. No bank or sane institution would finance such a business. Only on AIM can such companies flourish!

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   Drunken Sailor

   6 February 2016, 04:06

   EB

   The business model requires large up front expenditure for later payback once satellites are fully in use. They are only part way through the high upfront expenditure phase.

   I am not fully convinced by their explanation of how H1 – H1 is flat in numerical terms but still represents 18% growth.

   “Revenue was $31.0m (H1 2015: $31.1m). The year-on-year comparison was impacted by the translation of Sterling and Euro revenues into Avanti’s reporting currency of US$. In addition to that, the first half of 2015 contained an element of revenues to sub-contractors and higher low margin equipment sales than for the six months ended 31 December 2015. Adjusting for these factors, underlying revenue grew 18%”

   However it is possible I suppose. What is more important is whether you believe the forward growth statements:

   “$40.0m of contract wins mainly with government and large telecoms customers in the second quarter which are expected to make a strong revenue contribution in the second half”

   “Guidance of 50% continuing business constant currency revenue growth for the full year to 30 June 2016 supported by the second quarter order intake and a strong order pipeline “

   Also note:

   “During the first half, Top-20 Customer Bandwidth Revenue Growth increased 44.0%, driven by increasing demand from core customers. This drove an increase in Average Fleet Utilisation into the 25% to 30% range in the second quarter, from the 20% to 25% range in the first quarter.”

   Thus they can grow a lot more revenues with no increase in expenditure.

   The company still expects to burn cash overall when CAPEX is included until 2018:

   “Avanti has fixed cost bond finance at 10%, which is not repayable until October 2019 when we would expect to refinance it at lower rates. The Group held period end cash of $162.6m and furthermore has consent to draw down up to a further $71.0m in credit from multiple facilities. We do not expect to need to use this, but it does mean that Avanti has surplus cash headroom at the low point in our own business plan in mid-2018 of over $90 million, giving us very strong headroom and full confidence in our full funding to maturity.”

   This does rely on the revenue growing as expected from here on in.

   It does all depend on whether or not you believe the company or you think they are just telling porkies – they do offer excuses for most of your other points, may be these are true or may be they are just BS. If they are telling porkies, you will make money on your short. However if they are telling the truth and revenue is growing due to significant new sign ups, which continue to grow at the expected rate you could be badly burned.

   I would not be long or short of this stock at the moment. Full year figures will be the key indicator. If the revenue has grown and the receivables are received as the company says they will be in Q3, then this could be one to buy.

   PS a couple of Typos it should be H2 to 30 Jun 15 not H1 and it is tin cans (very expensive ones hence the CAPEX) not tun cans

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   J P Spaghetti

   6 February 2016, 06:11

   BS indeed – what can possibly be meant by the “quality of revenue”, given that revenue is fundamentally a purely quantitative concept and assuming wonga obtained through illegal activity such as drug dealing or arms trafficking is known to be excepted! Images of the wrong (and – hence – the right) kind of snow spring to mind…

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   Drunken Sailor

   6 February 2016, 06:26

   JPS I would guess that high quality revenue is cash that is paid reliably on time from big customers under long term contracts, where as poor quality revenue would be invoices that are not paid on time or at all and there is no repeat order. Piss poor quality revenue is where you have not even invoiced, but are accruing anyway, even though the chances of actually being able to even invoice for that amount are low – Ie the sort of revenue Quindell used to report and SGH do still report, but not for all that much longer.

5. ---

   Drunken Sailor

   6 February 2016, 10:19

   The key question is: Is Avanti full of shit or are revenues really rising?

   You have to read between the lines a bit to get these figures but:

   Q1 – Sep 14 Revenue $15.5m
   “Backlog at the end of the quarter was $420 million having taken $15.5 million from backlog to revenue” so all revenue was backlog
   Q2 – Dec 14 $15.55m (H1 revenue was $31.05m).
   Interims – “Revenues for the six months to 31 December 2014 increased 24.4% to $31.1m (H1 2014: $25.0m).”
   Q3 – Mar 15 $17.85m “Revenue for the 9 months ended 31 March 2015 increased 26.0% to $48.9m. Constant currency continuing business revenue up 54.5%”
   Q4 – Jun 15 $36.3m “ As anticipated, this core recurring revenue growth was augmented in the fourth quarter with non-recurring revenue”
   Q1 – Sep 15 $13.75m “Revenue was $13.7m, representing 23.4% sequential growth over the previous quarter on a constant currency continuing business basis”
   Q2 – Dec 15 $17.3m “Second quarter revenue was $17.3m, representing 27.7% growth versus the first quarter on a constant currency basis, taking first half revenue to $31.0m with improved year-on-year quality of revenue “

   So the proportion of real revenue to made up revenue seems to be improving, whilst taking out the non recurring revenue of Q4, overall (ie real plus made up) revenue looks to be pretty flat.

   There is a possibility,now more of the revenue is real and recurring, that Avanti might be genuinely growing. The Q3 update and how they spin it will be interesting.

   In UK we tend to take unlimited and relatively cheap internet access for granted. That is not the case around the world. Where I am at the moment Internet access is limited and if you breach your package you pay through the nose for a top up to see you to the end of the month. Internet access does seem to be a must have even though a lot of the people here are not all that wealthy. There might be something in the Avanti business model – it is too early to say. Q3 might give some indication, but better to wait for full year results before taking the plunge either way in my view.

   I am still not tempted to buy or short as the case is not clear cut either way, however a punt on the short tack does look a marginally better bet than a punt on the long tack at the moment