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By Tom Winnifrith, The Sheriff of AIM | Thursday 7 July 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.
Look back at our coverage of satellite disaster story and serial issuer of fascistic lawyers letters Avanti Communications (AVN) you cannot say that we did not stand up to bambastic bully boy CEO David Williams and warn you. Today there has been a pre close trading statement, the shares have crashed by 60% to just 24p and the Fat Lady is starting to gargle. My father & I will crack open the ouzo early today.
Feel free to celebrate a special sad Welshie Odd One Out contest HERE to join in the party.
Where to start? The company says that sales this year, to June 30th 2016, will be $83 million not the $90 million it was predicting. Yeah right: expect that even the lower number was achieved by the sort of accounting nonsense which has the FRC looking at last year's accounts. EBITDA is expected to be approximately $8 million. Given vast interest bills and capex/depreciation that means more stonking losses and cashburn which is not what bombast Williams was promising us just a few weeks ago.
Cash at the year end was $57m. Ooopps that means that Avanti spunked a massive $65 million in the last three months of the year despite achieving record quarterly sales of $43 million. Smell a rat or 27 yet? More red flags vicar?
Avanti serves up all sorts of excuses from currency swings in Africa (well I never, whatever next? Hot weather in Greece? Snow in Greenland?) and customers elsewhere demanding better credit terms,. Well that is capitalism for you. And thus we are also told that 2017 sales will grow by less than the previously guided 50%. I should cocoa.
The net effect is that all the bollocks cashflow projections about which bombast Williams has spouted in ramptastic rampfests such as THIS are just pie in the sky. So:
"The Company is at a final stage in the negotiation of an Export Credit Agency Facility which has been credit committee approved. However, it has now become probable that as a pre-condition to the full availability of the facility and to satisfy working capital requirements the Company will need to raise at least $50 million of equity."
You don't say? We told you this would need to happen given that Avanti's existing bonds yield way over 20%. Avanti denied our suggestion that it would need to place in order to get more debt away but here we are and I was right and bombast Williams was talking out of his fat Welsh arse.
At 24p the market cap is just under $50 million which means that IF an equity raise is possible it will be mega mega dilutive. And it is an IF at best.
Avanti says that it is looking at measures to cut its costs by $58 million over three years. Might I suggest firing David Williams first thing tomorrow ,for starters. That would save $4 million over three years .With his lunching expenses gone I reckon the savings would possibly be closer to $4.2 million.
The grave state of affairs is summarised:
If Avanti is not able either to secure the above funding or deliver on contingency cost reduction or deferral measures, the Company may not have access to sufficient liquidity to meet its funding requirements through Q2 FY 2017. The Company will keep the market updated as appropriate.
Ouch. Actually given the cashburn in the past three months and the upfront costs involved in cutting overheads I reckon its worse than that. If there is no placement and additional debt on board by September 30th the fat lady will be on centre stage and Avanti will go tits up.
At 24p keep selling.
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