By Lucian Miers | Sunday 5 March 2017
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.
Poster child for the dogs on AIM heading for zero is Avanti Communications (AVN) which plumbed new lows this week with a dreadful H1 statement. For a supposedly maturing business to have interest expenses more than turnover is astounding. This is a product of its recent insane more-debt-for-debt swap.
Those seeking short exposure to the chumps who agreed to throw good money after bad in this crazy fashion might care to look at Great Elm Capital (NASDAQ GECC) This is a US investment company part owned by Mast Capital, Avanti’s largest creditor into which it has parked a chunk of its Avanti debt effectively sharing its exposure with its fellow shareholders.
Mast’s Peter Reed is in charge. I stand to be corrected but as far as I am aware the Great Elm prospectus did not disclose Mast’s equity interest in Avanti which might by some be considered relevant. Great Elm has a market cap of $144 million which supposedly represents a discount to NAV. Avanti is by far its biggest holding and that was at the end of December before it chucked in more money. It probably now represents more than 40% of the entire assets of the Group at cost.
This will have to be disclosed in the next quarterly report as presumably will the further deterioration of Avanti’s finances. The market reaction could well be unkind.
It is not usually my remit to venture out of the UK but (think Slater and Gordon and Quindell) being short Great Elm offers great downside exposure not just to Avanti but also to those dumb enough to have invested in it.
This article first appeared on the Nifty Fifty website which Tom Winnifrith runs with Steve Moore & Lucian Miers. To access the website ahead of the next share tip from Tom & Steve and ahead of a new shorting idea from Lucian Miers next week click HERE
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