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Avanti Communications in 2016 - Drinking in Last Chance Saloon.

By Lucian Miers | Monday 4 January 2016


Disclosure: The author has a short position in one or more of the shares mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


I have long been a critic of Avanti Communications (AVN) and although the shares have performed badly lately they could and should be trading a lot lower. 

On December 17th the company guided a recurring revenue increase of 50% for the year to June 2016. This is a pretty bold call. Last year recurring revenue was $60 million. The last five quarters go like this:
 
Year to June 15 Q1 $15.5m Q2 $15.6m Q3 $17.7m Q4 $11.3m
Year to June 16 Q1 $13.7m
 
So to achieve the promised $90 million this year Avanti has to make sales of $76.3m in the last nine months, an average of $25.4 million in each of the remaining three quarters - an 85% increase over the last reported period.
 
Given Avanti’s appalling track record for making guidance and the fact that satellite giants SES and Eutelsat are forecasting revenue growth of  -3% and +3% respectively the chances are that yet another big miss is on the cards. Significantly no mention of profit, even at EBITDA level is included in the update. Rightly so.
 
The only way Avanti is likely to get even close to $90 million revenue would be at huge cost to the EBITDA and cash flow. Given that as things are it is blowing $30 million a quarter  to add to its large debt burden, there is little headroom for buying sales.
 
The slide in Avanti’s shares and its junk bonds (which last time I checked were yielding 18%) suggest that the market’s patience is wearing a little thin.
 
Well now Avanti has nailed its colours to the mast. It has stated categorically that it expects to make genuine recurring sales of $90 million by June 2016. Also that it has no need for further funding.
 
The time for bluster and obfuscation is over. Its time instead for the rabbit and the hat. A six month fuse has now been lit.
 
I believe that only a third party bid that makes no financial sense can save Avanti shareholders from blow up. There was talk of Facebook last year but it chose to go, not with Avanti, but with a partner who was yet to launch a satellite. Bulls of the stock will be gratified to know that I walked slap bang into no fewer than three of these "no logic" bids last year and for this reason alone I am not "all in" on this one. 
 
It still remains my top short for 2016.
 
This article first apopeared on the Nifty Fifty website which Lucian Miers runs with Tom Winnifrith & Steve Moore - sorry, it is paying customers first. To access the website ahead of Lucian's next short idea out later this week go HERE


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Comments

2 comments

  1. I don’t know what it is about Avanti but it attracts losing shareholders like bees around a honey pot.

    Like the old communist administrations, every time old Mao passed wind in the lift the Chinese issued a set of stamps in celebration, Avanti seem to have picked up the same habit, everything is thrown at that SP every time it farts, and a whole army of advisers and PR flunkies step up to the plate to ramp it, they must be billing the shareholders a fortune.

    Avanti have always made a lot of noise, I expect them to get even louder the more the SP deteriorates, they wont want to lose this nice little earner, nor will Williams,

  2. Where can you get a price for Avanti’s bonds?


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