Tuesday 23 January 2018 ShareProphets: The one stop source for breaking news, expert analysis, and podcasts on fast-moving AIM and LSE listed shares

Avanti Coms: another jam tomorrow, cash munching update & piddly director purchases scream SELL

By Tom Winnifrith, The Sheriff of AIM | Monday 16 May 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.

Institutional investors continue to sell. But Avanti Communications (AVN) directors hope that piffling share purchases by themselves will persuade mug punters to follow suit. Do I care that David Williams (total package last year $1,154,445 after another year of mega cashburn) has bought 5,434 shares at 91.5p taking his holding to 1,709,144. Seriously? A guy who earns c$20,000 a week for trainwrecking this company has bought £5,000 of shares? And that is meant to show he has faith in the company? If anything it shows he has none. Now to the Q3 trading update.

Remember that this is a growth company or at least that is what the bombastic Mr Williams tells us. In that light we are told that Q3 (to March 31 2016) revenue was $19.5 million, 14.7% up on Q2 ($17.3 million) and that EBITDA was $400,000. Jolly good. How about year on year comparisons to show the real progress. Oh? the bombast does not supply so I will. In Q3 2015 sales were $17.8 million and EBITDA was $1.4 million. So a $1.7 million increase in sales year on year has seen EBITDA fall by $1 million. Great...if this is a growth stock I'm a banana

As we know EBITDA is "bullshit earnings" especially when like Avanti you are drowning in debt. So lets look at cash generation. At the end of Q3 cash stood at $122.4 million so Avanti manged during this one three month period to send $40.3 million to money heaven. We have no idea on debtors/creditors but given how the bombast spins things I'd expect the net current asset position to be less than pretty.

And so to the jam tomorrow. Avanti says some orders from Q3 slipped into Q4 and that it is reaffirming FY guidance of sales of $90 million. Hmmmmm- having averaged $17 million a quarter so far this year, the bombast is telling us to expect $39 million in Q4. really? last year it fudged sales with a blatant accounting fiddle HERE. This year I predict the African gambit HERE to allow the bombast to "hit" his target.

While the bombast blathers on about future satellite launches how are the existing tin cans faring in terms of sales. the oldest, Hylas 1 has now been spinning around the globe for five years. Williams says:

Average Fleet Utilisation was within the 25% to 30% range during the third quarter, having entered into this range during the second quarter. This metric helps to track capacity uptake and gives an indication of revenue potential when Avanti's fleet is mature. It is calculated by dividing average utilised forward capacity by total available capacity for the fleet of in-service satellites.

er... so you cant sell capacity on your existing fleet so the answer is to get more in to debt to launch more tin cans. Feck me. I guess if I had an MBA I could understand that business plan.

And so lets turn to the cash position.The bombast states:

Period end cash was $122.4m. Avanti has additional consented credit capacity of $71.0m. As planned, the Group has made good progress towards securing additional liquidity. Several different facilities have been offered and the most attractive is in documentation.

None of us still have any idea what additional consented capacity is but it is not the same as an agreed facility. However Williams is assuring us that with his bonds now yielding junk on steroids amounts (20%+) he has found someone crackers enough to lend him more cash. He will need it because based on these woeful numbers and, assuming that the Q4 EBITDA fudge fails - as was the case in 2015 - to equate to cash generated, without more "liquidity" Avanti will be out of cash and bankrupt by Christmas.

This company will end up being owned by those stupid enough to have lent it cash. The pitiful shares purchase by the bombast today tells you that he agrees with me that the equity is now essentially worthless.

The shares are now 86.75p to sell. Williams is out of the money already! It will get worse for him. Sell

Filed under:

Never miss a story.

This area of the ShareProphets.com site is for independent financial commentary. These blogs are provided by independent authors via a common carrier platform and do not represent the opinions of ShareProphets.com. ShareProphets.com does not monitor, approve, endorse or exert editorial control over these articles and does not therefore accept responsibility for or make any warranties in connection with or recommend that you or any third party rely on such information. The information available at ShareProphets.com is for your general information and use and is not intended to address your particular requirements. In particular, the information does not constitute any form of advice or recommendation by ShareProphets.com and is not intended to be relied upon by users in making (or refraining from making) any investment decisions.

More on AVN


Comments are turned off for this article.

Site by Everywhen