Avanti Communications Share Discussion Threads

[akajimmy9] 02/12/2015 16:34

If you read the annual report, revenue increased by 50.4% on a continuing basis. This is what you should be focusing on. Need to keep growing the continuing revenue, striping out non-reoccuring such as the sale of spectrum.

[dangersimpson2] 02/12/2015 13:59

I agree quarterly is noisy which is why I picked HY and it could be that Q1 16 was just a bad quarter for the company and not indicative of the performance of company for the full half.

I personally think y-o-y is a bit slow and doesn't capture the true business trends but even if this is your preferred metric then FY15 Recurring Revenue was 8% lower than FY14. It's a matter of semantics where you consider that 'rapidly declining' or simply 'declining' but what is clear is that it isn't nonsense. Quite simply the company hasn't been growing on any metric apart from utilisation and number of sales staff employed for quite sometime and that is the most worrying part - increasing utilisation has not been match by revenue.

[I have of course excluded the 'sale of spectrum'. In my opinion to judge the performance of a company on values that are both non-recurring and non-cash is foolhardy. A true sale generates either cash for the company or the possibility of future cash payments - this sale did neither.]

[michaelmouse] 02/12/2015 13:29

dangersimpson2 - We know you are short Avanti as you have stated. That's fine, but to suggest that "if you look at the real underlying revenue growth it's a rapidly declining company" is nonsense. The figures that matter are the yearly numbers not quarterly comparisons. Yearly revenues haven't been growing as fast as investors had hoped for, but they are growing and that rate of growth could easily accelerate.

Clearly you need to talk your own book, but this really is a speculative investment for both longs and shorts alike.

[dangersimpson2] 02/12/2015 13:04

Selling out at a loss when the investment thesis changes is one of the hardest things to do, so is hopefully indicative of future sucessful investment decision-making. Given that Avanti trades at 7x recurring historical revenue and at current pricing is unlikely to be profitable until at least 2022 it seems the right decision.

I think the only people who will make money from Avanti are the directors from their salaries. They may be technically good at developing and launching satellites but they have made 2 major errors imo:

1. Poor capital allocation - despite clearly having issues with generating revenue growth for existing satellites they keep raising equity and debt to build more spending hundreds of millions of dollars.

2. They don't seem to be dealing with the issues. Indicative of this is their management commentary. Each period they pick a different comparative to present the results in the best possible light:


Comparative Reported Revenue Growth2015 Q1 No Comparative -2015 HY 14HY 24%2015 Q3 14Q3, const. curr, cont. bus, adjusting out FY1 55%2015 FY 14FY with exceptional gain 30%2016 Q1 15Q4 const. curr, cont. bus. w/o except. gain 24%



If you only read their management commentary you would get the impression that they were a rapidly growing company. However if you look at the real underlying revenue growth it's a rapidly declining company:


Underlying Rev. Growth vs prior HYH1 2013 16%H2 2013 40%H1 2014 108%H2 2014 62%H1 2015 -23%H2 2015 -7%H1 2016F Q1x2 -6%



Trying to present revenue decline as revenue growth via cretaive comparitive choice is not the sign of a managment that are being honets about the challenges of their business and taking the necessary steps to deal with them in my opinion.

I know some shareholders think that debt holders are doing well out of Avanti with their 10% coupon but only if they get paid back when the notes mature in 2019. At current pricing Avanti won't be cash generative in 2019 which means that noteholders getting paid completely depends on Avanti being able to refinace the debt. 3x10% coupon - 100% capital loss still equals -70% return! So although 10% seems high it reflects the real risk of capital default. Doesn't seem a good risk-reward to me.

[nugacity] 02/12/2015 11:10

At the current price, I am thinking of using my tax return dues in the hope they will be worth more come the end of January. But just how low is this stock going? Will it be cheaper tomorrow?

I guess we are all losing patience. I have agreed with Avanti selling franchises to local ISP setups until now. Local politics over so many countries looked like a hornet's nest and probably best avoided if you are unfamiliar with the bribing culture and other things.

But it is all too slow and I am now thinking it is time to become proactive and for Avanti to set up their own ISP in the safer markets. Dealing with end-users directly will be lots more work but cutting out some middle men might attract investors? Creating a new ISP is probably easy compared to designing and launching satellites but I am no expert.

[aa29] 02/12/2015 09:21

Well done for biting the bullet on an investment which hasn't gone the way you planned.

It won't make you happier though if I say forget the ISA, what if we'd all sold at the same time as the directors at £7 when HYLAS 1 was launched?!

[shazbo] 01/12/2015 18:28

It is with a heavy heart that I am now completely out of Avanti at a considerable loss. I was genuinely excited in the beginning but what a miserable 5 years it has been. As with most of you, I'd have been better off putting my initial outlay in the most pathetic cash ISA, I'd have made more money. I am staggered that people can still be in a positive frame of mind on here. Absolutely zero light at the end of this tunnel and I am off to use my depleted funds somewhere that has a chance. Half of us will be dead by the time this shows any significant rise.

[2350220] 25/11/2015 18:35

Errr . . . does that need an answer jadetic?
This list of his awful tips is too long to post.
He sounded soo convincing when I used to follow him.

John

[jadeticl3] 25/11/2015 11:17

How did all those experts like Tom W, and his successor at RHPS, get this one so horribly wrong?
No wonder they choose to sell their opinions to others rather than invest their own money directly.

[yorgi] 25/11/2015 10:26

Fair comment Mjcferguson.

[dangersimpson2] 25/11/2015 10:25

Have you actually run the numbers on Q1 rather than just reading the management commentary? 2xQ1 2016 Revenue < H2 2015 Revenue < H1 2015 Revenue. Doesn't classify as good sale momentum to me.

Although G&A costs are largely fixed they are fixed at $35m pa and there is $64m debt interest pa & c$45m satellite depreciation. COS appear to be mostly variable costs and have run at 60% of revenue over the last few years.

This means they need to generate around $230m revenue/year to break even on a FCF basis and c$400m/year to report a profit.

That looks a big step from Q1 revenue of $13.7m. If they can generate 50% pa revenue growth from here they will generate an accounting profit in 2021.

[mjcferguson] 25/11/2015 10:02

After an upbeat first quarter report with good sales momentum the share price here has dropped 20% which seems harsh.
The cost base is largely fixed here and the sales momentum from now should start generating profit.
Tempted to buy more.

[bulltradept] 20/11/2015 14:56

hpcg,

Your post points to a possible equity raise at some point then.

[hpcg] 20/11/2015 04:19

Every short risks a takeover premium, every long risks bad results or corruption; we all take risks. Near bankrupt companies are amongst the best and the riskiest shorts. AVN currently hits my "going bankrupt" screen, but that is a long way off. However the EV is still very large, as is the equity. Thus a wild swing upwards here is mathematically difficult. I was long here for a good period, and somewhere back in time (on the old thread) I posted revenue projections. I think it is about 3 years behind my optimism. Of course things can change, and if the situation improves it will be visible in results. So far .....

[aishah] 19/11/2015 21:44

"I hesitated on doing this but I literally owe Etrade $106,445.56..."


Who knows but AVN might just kick the shorters into touch one day BIG.
dyor

[jeffian] 19/11/2015 18:45

That'll save you both betting the farm on Tesco, then.

[michaelmouse] 19/11/2015 14:58

LOL. Touche. :-)

[dangersimpson2] 19/11/2015 14:53

So Buffett won't short stocks. Equally Buffett wouldn't buy into a heavily loss making tech stock facing pricing pressure with a history of failing to hit it's targets. Looks like neither of us will be the next WB :-)

[michaelmouse] 19/11/2015 13:22

dangermouse2,

Here's an exchange for you:-



By the way:-

"The assymetric nature of the potential downside has nothing to do with timeframe of returns - they are very different concepts."

come again?

[dangersimpson2] 19/11/2015 12:44

michaelmouse,

The assymetric nature of the potential downside has nothing to do with timeframe of returns - they are very different concepts. Infinite losses is an old argument against short-selling but to quote Jim Chanos 'I've seen a lot more stocks go to zero than ones that have gone to infinity!'

The best way to deal with the risk is via position size and only shorting when you percieve a very wide gap between value and price.

[michaelmouse] 19/11/2015 11:04

dangersimpson2,

"So for all positions (long or short) where you hope to take advantage of the difference between a valuation estimate and a market price you have to plan to hold for a significant period.

In this respect I'm not sure the timeframe for longs & shorts are that different."

I suspect that you're not that naïve or at least I hope not. Any losses that I make on my invested capital are limited i.e. if the shares become worthless. Potentially your losses are unlimited. By implication your time frame for holding a short position is far more precarious if the price starts to move against you. I can hold forever should I choose to do so.

[dangersimpson2] 19/11/2015 10:32

michaelmouse,

While it is always nice when you do the analysis, come to a conclusion, take a position and the market starts to agree with you immediately it rarely happens like that. So for all positions (long or short) where you hope to take advantage of the difference between a valuation estimate and a market price you have to plan to hold for a significant period.

In this respect I'm not sure the timeframe for longs & shorts are that different. Obviously there is a stock borrow fee on shorts but there will be no dividends to fund in the next few years. And on longs there is an opportunity cost. You could get 10% holding Avanti bonds with less risk so if you are not generating at least that from the equity long term you are missing out.

On using P/E as a valuation tool - all a P/E represents is the result of a DCF under some simplified assumptions. The question is how valid are those simplifying assumptions not whether a P/E is a better tool than DCF. As Einstein said 'make everything as simple as possible but no simpler'

Cheers,

Danger

[michaelmouse] 19/11/2015 07:45

dangersimpson2 - "You obviously feel they will be able to deliver these, I have my doubts based on the past performance that's what makes a market."

Agreed, but since you are short on the stock, your timeframe for success is far more pressing and immediate than mine.

Jeffian - If you read my blog you will notice that I never try an analyse and make in-depth future projections for my more speculative investments. It's totally pointless, although I'd never invest in a company that I thought was hugely overvalued based on it's fundamentals. Even with speculative investments I like to see demonstrable progress. Avanti are making demonstrable progress albeit slower than originally anticipated. However, equally likely is that they reach a "tipping point" where progress suddenly accelerates faster than anticipated. My time frame for investing is years not days.

Where companies are more established then it is easier and more productive to say that the company is undervalued or overvalued e.g. p/e ratios, tnav etc.
I am of the view that if you have to go beyond a few simple mathematical calculations to value a company then you're almost certainly over-analysing the situation.

[dangersimpson2] 18/11/2015 23:45

michaelmouse,

My point is that we 'know' (by calculation) that unless Avanti can increase there revenue at least as fast as utilisation and/or increase their gross margin then the equity is significantly overvalued. Impressive client list or rapidly increasing utilisation alone will not generate long term returns to the equity at the current share price. You obviously feel they will be able to deliver these, I have my doubts based on the past performance that's what makes a market. But at least we know what to look for to judge management success in future results - revenue increasing faster than utilisation and increasing gross margin. Anything else is a side issue.

Cheers,

Danger

[jeffian] 18/11/2015 19:58

michaelmouse,

"over the years I've read countless bullish and bearish projections and in-depth analysis of companies like Avanti (and indeed including Avanti) and quite frankly they're not worth the paper they are written on." I don't disagree, but rather an odd comment from someone who has not been slow to spam his own blog over the bb!

"I've seen figures and DCF models galore since they floated. All of them without exception have been well wide of the mark." Indeed, but all of them without exception have been well wide of the mark on the upside! That's the point. AVN have missed every sales/revenue/capacity target they've set themselves and that's the problem.