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Avanti Communications - please explain your 100% rum & coke subsidiary accounts?

By Tom Winnifrith, The Sheriff of AIM | Sunday 28 February 2016


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.


If a company organanises itself with complex subsidiaries with opaque accounts that simply contradict themselves you know to run a mile. Think Quindell. Now welcome to the world of Avanti Communications (AVN) - target price 0p - and its wholly owned subsidiary Avanti Communications Infrastructure Limited. The numbers just do not make sense.

The most recently filed accounts are for the year to June 30 2014 and are HERE.

You will note that in both 2014 and 2013 sales and costs were nil. The P&L is thus 0 all the way through. You will however also note that in BOTH years current debtors ( that is amounts owing) are £57, 063599 while current creditors (amounts owed) are £57,483,762. It seems that all sums owed and owing are with other group companies. But what is bizarre is that for an asset or a liability to be termed current it must be due for collection/payment within 12 months.

It is quite clear that this is not the case with the current assets and liabilities of Avanti Communications Infrastructure Ltd. So one wonders:

1, How has a subsidiary that appears to be dormant have built up such a balance sheet?
2. In what sense are any of the assets or liabilities current?
3 To whom and from whom are these contracts with and why?

Well how about we look at another set of accounts. HERE is 2010.

Here we see that once again there were no sales or costs so the P&L is nil although in 2009 there were costs (c£19,000) but no revenue. However in 2010 (despite the business recording absolutely ZERO sales or costs or P&L activity we see that current receivables increased from £46.798 million to £54.514 million. Meanwhile current liabilities increased from £4.718 million to £5.336 million while non current liabilities increased from £42.093 million to £49.190 million. WTF?

1. So how with zero trading activity were there such wild balance sheets swings?
2. How are trade payables which were due in more than one year in 2010 due in less than one year by 2013 but still not paid by 2014?
3. If all those trade receivables and some trade payables were due within one year at June 30 2010, how come they are still marked as current ( ie due within a year) but not paid in 2013 and 2014?

Good, well run companies simply do not leave one asking questions like this. I do not expect Avanti to have an answer or to answer these questions it will simply blather and bluster as normal.

And that is another reason why the shares at 101p are a sell with a target price of ZERO, 0p.


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More on AVN


Comments

3 comments


  1. Drunken Sailor

    Avanti announced:

    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.

    And:

    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% and strong contract wins during the period support a stronger full year growth outlook.

    Second quarter revenue was $17.3m, representing 27.7% growth versus the first quarter on a constant currency basis.

    All these double digit % growths are great except there is no start figure in actual cash terms to work out what they are now in actual cash terms. If the start figure on what these double digit growths every quarter was £1k they may have now grown to over £3k.

    Moving from a range of utilisation of 20-25% to a range of 25-30% could be a move from 24.5% to 25.5%.

    They have just announced another great contract:

    http://uk.advfn.com/stock-market/london/avanti-communications-AVN/share-news/SuperUydu-Signs-New-Contract-with-Avanti-Communica/70544504

    As usual no commercial terms only blather. No doubt this will result in more double digit % growths in Q3. But will it actually make a significant difference to real revenue? will we see utilisation moving from the 25-30% band into another band?

    Companies that only report % rather than give the actual numerator and actual denominator are generally trying to hide something.

    Agree AVN is not a buy and agree 0p is where they could end up. Still do not see them achieving 0p in 2016, unless the cash is complete fiction like a China Fraud / Globo. The cash has almost certainly come from murky places and not from real sustainable revenues, but I believe it is there. If it is not really there then yes AVN could be the GBO of 2016. Full year audited accounts will be interesting – should be out in Sept. After QPP and GBO auditors must be taking a bit more care I would have thought.

  2. Drunken Sailor, I think you are correct about growing from a tiny base. It seems that the deal between Avanti and the Government to provide subsidised rural broadband has signed up a grand total of 24 customers. Revenues of around £100 a month for each customer if they are lucky. So about £30K a year if they are extremely lucky. Easy to see why they don’t like to put actual numbers on these contract wins. That’s while they rely on the Government to subsidise the installation. http://www.theregister.co.uk/2016/01/25/folk_shun_subsidised_satellite_broadband/

    You would only sign up for satellite broadband if you really had no other option. So in the long run even these revenues aren’t really sustainable. Fibre optics are getting cheaper and faster (I work in the industry). At some point, if the Government is to subsidise anything, it will make sense to subsidise fibre optic connections to more rural communities. Even now, if you live in a rural community it makes far more sense to band together and install microwave broadband. Expensive to install perhaps, hence why you need to band together, but the ongoing costs are cheaper than satellite and by all accounts, user experience is much better.

    Needless to say I’m short Avanti.


  3. Drunken Sailor

    BLUEFREW,

    As an individual or small group wanting Internet access, I agree entirely, the buy your own dish model will never catch on, apart from with terrorists where it has other advantages.

    However what is needed, and I think is the opportunity Avanti are going for, is to provide the big pipe for large areas that would otherwise have shockingly bad connection. Where I am now I can only Skype the Mrs outside the peak times here. Even then it keeps cutting out or I can hear her but she can’t hear me. The problem is the big pipe is not big enough. Thus I think there may be something in that business model. But that will only become clear when they stop messing around with made up revenues and start delivering real revenues with real growth that matches utilisation growth.

    I thought the 2 recent announcements were interesting.

    “SuperUydu will use Avanti’s HYLAS 2 satellite to deliver broadband communications services to SMEs, large enterprises, and consumers throughout Turkey.”

    Is this Avanti provides the pipe, SuperUydu do the ground connectivity?

    “contract with isNet, a subsidiary of Isbank, one of the largest banks in Turkey.

    isNet will provide Ka-band satellite connectivity to its enterprise customers in Turkey and Europe through Avanti’s HYLAS 1 and 2 satellites.”

    This sounds like the lots of small dishes model, or in reality not many small dishes.

    As usual no commercial terms are announced. Avanti are very good at blathering on about total values of contracts – $4m is mentioned in the interims, if that is $4 for a 1 year contract, not bad lets have a few more of them. If it is $4m total for a 20 year contract, what is the point?

    The only point I take issue with is 0p in 2016, they would really have to go some to spunk all that cash away in 12 months. If the 3 tin cans already up are not getting the utilisation, what is the point of launching more in 2017 and at some point I would expect the Capex to get pulled. Unless of course the cash gets stolen ala Globo.

    Good luck with your short you are probably on to a winner there.


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