By Lucian Miers | Thursday 31 December 2015
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.
On December 17 Avanti Communications (AVN) served up a quarterly update. From its bombastic CEO David Williams, a man who not only admits to, but boasts of, misleading erarly stage investors with a fake demonstration, there was the usual mix of bluster and misleading metrics. The only thing that commends Avanti is that it never fails to miss operating targets - it is, in this respect, the most consistent company on AIM.
But the bottom line is that after yet another junk bond and equity issue in late summer, the cash is rapidly running out and meanwhile the company sits on c$600 million of debt.
I note that, with interest rates on the up, the US junk bond market is in trouble. Already a number of funds have closed in recent weeks and there are reports of widespread redemptions. So far none of Avanti's backers appear to be in trouble but you never know. And against such a backdrop the next time this company tries to raise more debt it is going to struggle.
In easy money times mugs will invest in junk bonds on companies that miss all targets, burn cash, refuse to answer questions about trading with ISIS, have accounting policies so aggressive that they are reported to the FRC, etc. In tough times that becomes an almighty ask.
I think it highly likely that by this time next year Avanti will again be out of cash. And at that point think Afren. Do the bond holders pony up more moolah like lapdogs or do they do so only as part of a wider debt for equity consolidation ( which means near wipeout for shareholders) or do they just walk in which case it is 0p here we come.
2016 will be the year of reckoning of Avanti where I am happy to stay short. It is my second share tip of the year - a sell at 171p target as low as 0p.
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