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Avanti Communications PLC: Circling the Drain

By Lucian Miers | Sunday 22 May 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.

At the UK Investor show last month, during a discussion of Avanti (AVN), I listed a random sample of the many instances where the company has made statements which later prove to be wildly optimistic, or are contradictory to earlier ones. Last week’s 3rd quarter update, 16 May, provides another gem: It 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

Raising more money was part of the plan? What about the statement made at the interims three months earlier in February?

Avanti has fixed cost bond finance at 10%, which is not repayable until October 2019 when we would expect to refinance it at lower rates. The Group held period end cash of $162.6m and furthermore has consent to draw down up to a further $71.0m in credit from multiple facilities. We do not expect to need to use this, but it does mean that Avanti has surplus cash headroom at the low point in our own business plan in mid-2018 of over $90 million, giving us very strong headroom and full confidence in our full funding to maturity.

So the company is now putting the paperwork together to raise $71m in order to provide a $90 cash cushion in two years’ time. Does it really expect us to believe this?

Leaving aside the deluded “expectation” of refinancing its colossal debt burden at lower rates than 10% when Mr. market is demanding 24% right now to hold its paper, Avanti seems to be prepared to promise anything in its desperate quest for cash

It is effectively sticking with guidance of 4th quarter continuing revenue of $39.5 million when the last seven quarters are (from Q1 last year:) 15.5 15.6 17.7 11.3 13.7 17.3 19.5. The pledge that this is “continuing” precludes the use of phony one-off revenue, as per last year when $25 million of “sales” were conjured from outer space, so a massive miss is a given..

As with all Avanti’s misses, it will doubtless come with the usual optimistic assurances that good times are just around the corner because by then the hope is that sufficient cash will have been raised to allow the accounts to signed off.

Given that the market benchmark for any debt raise is an interest rate of 24%, and any equity raise would be hugely dilutive at these prices, it looks like the only route is to find suckers willing to stump up for some sort of complex convertible issue that they don’t understand.

CEO Williams must be hoping that none of these suckers read the October 20125 Edition of the trade publication, Satellite Executive Briefing in which he is quoted as saying that HTS (High Throughput Satellite) prices are down 60-80% in the last few years.

The shares remain a compelling sell at 86.25p and I remain short

This article first appeared 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 the next share tip from Tom & Steve and a new shorting idea from Lucian shortly GO HERE

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