Avanti Communications Share Discussion Threads

[hpcg] 10/12/2015 13:53

Funny, in a not funny losing money way, all the arguments with Cawkwell about the capacity were irrelevant since that has never been a problem. I really didn't think selling would be a problem; turns out I was wrong.

[hpcg] 10/12/2015 13:51

Nugacity - we've been through the demand case before pre 1 launch and post 1 launch. It never turned up though. The problem now is the debt. Any revenue is going to be too late.

[nugacity] 09/12/2015 10:24

bwakem - so you think BT will fork out a chunk of money to Avanti because they don't have a market for the bandwidth they are buying.

It does not matter if BT sell it or not - that is between BT and its customers - Avanti are just making it possible! How many businesses have the internet for Netflix? The demand for speed is likely to support on-line sales as much as gamers.

Rural houses probably need the internet more than urban ones with everything on their doorstep - I don't think I agree with anything you said.

[bwakem] 09/12/2015 10:06

There are no financial details of the contract win because there is no guarantee of any revenue at all. They will only get paid if any of those 300,000 homes decide they will pay the extra for a satellite system to speed up their internet.

I suspect the number who will do so is quite small. These are mostly rural houses who probably all have Sky since nothing else will be available so they won't be watching Netflix. This is just a desperate announcement to try to prop up the rapidly declining share price of a company that is a massive cash burner and will run out of money before it becomes cashflow positive - and the market realised that, hence the share price action yesterday.

[mjcferguson] 09/12/2015 08:56

Topped up yesterday.Expect this share to transfer wealth from the impatient to the patient.

[dangersimpson2] 08/12/2015 22:35

mm,

1) yes that's why I said 'allowed' as an option as well as 'prepared' - I guess it didn't stop someone giving details to sky news though.

2) In terms of subsidy. If they can get the kit and contracts in Syria I'm sure that people who really wanted satellite internet access in Scotland could have had it before now if they had been willing to pay for it. The difference with this deal is it provides it to people for whom cost was an issue before now. Like solar panels people could have them before feed in tarrifs but they only really made economic sense with the generous feed in tarrif. Unfortunately you can't expect this subsidy in other countries' markets.

Care to share your model? Does it explain how margins have been so static over the last few years but will change in the future? I think the only way that you can model this effectively is by splitting up the streams of revenue and costs into the different types. Something I've not seen anyone able to do so far.

[michaelmouse] 08/12/2015 19:12

dangersimpson2 - post 1794. Thanks for the response. A couple of points about the "cons" you mentioned.

1) I'd guess that the specific contract details with BT are confidential and Avanti were asked or chose not to release them. Why would they, particularly margins? I don't ever recall any RNS releases that detail margins with a specific client since they would just be alerting the competition to their pricing structures.

2) You say the "subsidy implies that market can't bear full cost at current pricing". From the RNS:-

"consumers will be eligible to receive a contribution from government to fund the installation of satellite broadband services, with the consumer then paying monthly service charges. The scheme is expected to go live during December."

It doesn't imply the market can't bear the full cost, it simply means the government is making a small contribution to the set up costs to encourage uptake and honour it's pledge. This is a positive for Avanti since it should encourage a more rapid and stronger uptake.

The sky news article is interesting since it suggests that if 50,000 homes take up the offer then that equates to £15m of recurring revenue per annum for Avanti. However, ministers estimate that 100,000 homes will take up the offer which would equate to £30m per year.

You also say "My model includes very rapid revenue growth but shows Avanti to be overvalued IF they can't improve their gross margin."

If my Aunt were my Uncle. My model suggests that gross margins will improve significantly. We'll see who's correct in due course.

[pennyfalls] 08/12/2015 17:59

Dangersimpson2 - enjoy reading your posts, very informative.
Cheers PF

[dbadvn] 08/12/2015 17:54

dangersinpson2,

Agreed. Definitely not the best example of reporting , but nothing essentially irregular as implied by TW. Hopefully in the future the FD will have more input to the RNS....

[dangersimpson2] 08/12/2015 17:00

I agree that if you read the annual report you can tell that the Spectrum Sale:

- Generated no cash for the company.
- Was responsible for the move to positive EBITDA form a previous year EBITDA loss.
- Gave rise to NPV lease liabilities of $10m (I'm not sure where TW get's his $13m from tbh.)

But you do have to read the notes to the accounts to get the full picture e.g. Note 24:

Also included under finance leases is the 13.5 year IRU agreement described in Note 2. The present value of the minimum lease payments
in relation to this agreement and included below is $10.0m of which $0.8m is current and $9.2m is non-current.

But this part is not mentioned in the results RNS as far as I can see only the AR which is published later.

I'm not an accountant so whether it is right to refer this to the FRC I have no idea. But can anyone on here honestly say they read the results RNS and immediately understood the true nature of this transaction and adapted their investment case accordingly? I certainly didn't.

[michaelmouse] 08/12/2015 15:56

I forgot to mention that in the previous two co-ordinated shorting attacks the share price subsequently bounced quite rapidly back up to £3 (see chart).

[michaelmouse] 08/12/2015 15:43

If you believe in the long term story then just hold or buy more at the lower prices. We've been here twice before in the past couple of years with these co-ordinated shorting attacks. Looking at the chart, I would guess that a bounce in the share price is fairly imminent. Nothing goes up or down in a straight line forever. Interestingly, if there is a bounce from around these prices then a triple bottom will have occurred, and it will be fascinating to see if many of the shorters can keep their nerve. Some will be sitting on pretty sizeable gains I'd guess? No advice intended, but potential buyers could plausibly take advantage of any short squeeze.

Personally, I continue to hold and can do so indefinitely. The news flow continues to sound very positive and hence the story remains in tact. Of course it is a speculation rather than an investment and in the next few months and years we'll know the outcome.

Cheers.

[dbadvn] 08/12/2015 14:29

On his blog TW has published a copy of a complaint he claims he has sent to the Regulator. The letter implies that the revenue of Avanti has been mis stated. The tone of the letter implies that this has been done in a way that tried to hide the fact that the revenue stated was not real and the intention was to mislead anyone reading the accounts.

Anyone reading the accounts and who has a modest understanding of accounts will see that on page 10 of the accounts the FD Nigel Fox states immediately and with clarity why there is a $25m non-recurring revenue in the total and how that has arisen.

This is not hidden away in the notes ( although it is further explained for those that like detail on pages 40,46,70 and 72). There is no attempt to hide , deceive or otherwise mislead investors - exactly the opposite in fact.
The accounts in this form have been signed off by KPMG.

Perhaps the regulator should be looking at the activities of TW rather than the FD of Avanti.

[nugacity] 08/12/2015 12:34

I feel sorry (in a way) for those off you who have had automatic sells triggered.
But you are the people helping the shorters no end!

If you believe in this stock it makes more sense to have an automatic buy instead of sells at low prices. But you need to be flush with cash to do that.

Shame we did not have a few oligarchs AT buying at around £2.10 so the shorters came unstuck. Cannot believe they have suckered us into giving them 50p a share or more from what was already a low price.

[dangersimpson2] 08/12/2015 10:51

COS has averaged around 60% of revenue (excl. the non-cash spectrum sale) for the last 3 years.

See 3rd graph down on here:



I would exclude satellite depreciation as a non cash expense. Admin exp. is running at $35m but they say will increase slightly since they are adding more sales staff. debt interest is 10% of $640m = $64m pa.

It's the COS % on cash sales that makes the big difference though. That's what to watch for in future results.

[akajimmy9] 08/12/2015 10:24

Out of interest Dangersimpson, what margin do you currently have for Avanti?
I'm going to build a model myself...

[akajimmy9] 08/12/2015 10:24

Out of interest Dangersimpson, what margin do you currently have for Avanti?
I'm going to build a model myself...

[dangersimpson2] 08/12/2015 09:22

mm,

pros and cons imo:

+ subsidised by government means that should drive more revenue than the market would otherwise.

+ gives some confidence over future revenues.

+ should be relatively good quality revenue payed in cash with minimal accruals and write-offs.

- Not allowed/prepared to RNS the details, only released through sky news.

- subsidy implies that market can't bear full cost at current pricing.

- no mention of margins

My model includes very rapid revenue growth but shows Avanti to be overvalued IF they can't improve their gross margin. So while their extra subsidised revenue is positive it doesn't overcome the big valuation gap if margins don't improve. The revenue from this contract begins soon so we should be able to judge if it has a positive impact on margins in upcoming results.

[dangersimpson2] 08/12/2015 00:21

I guess if Avanti considers Der Spiegel's article defamatory then TW could be included in any action for quoting them.

I doubt Avanti will sue Der Spiegel though. Well respected papers do get things wrong of course but in general they publish well researched journalism that's been checked by their lawyers.

It would be fairly easy for Der Spiegel to defend as well - just use discovery to request GPS co-ordinates of comms in the area and see if any are in ISIS held territory. It would only take 1 communication to dismiss the case.

I agree and made exactly the same point about intelligence services. Maybe why Avanti wouldn't comment to Der Spiegel.

[pennyfalls] 07/12/2015 23:20

Ps...I'm sure if ISIS are taking advantage of satellite coms, MI6 are all over it.

[pennyfalls] 07/12/2015 23:17

Hi Dangersimpson2,...I've written at length about it on iii

TW had today again flagged this up on Share Prophets by asking the question (or even IMPLYING in a very public domain) about "Are Avanti profiting from evil....." etc etc

He's decided to keep chewing at this. If Avanti decide to "no comment " him and sue, he could be hit by a HUGE lawsuit for loss of business name/Mark Cap. It besmirch's Avanti's name big time, you could argue.

If it is libelous, it makes no difference that he didn't source the original story. He's just as culpable. He's also repeating the libel.

But, Avanti should either hit back vociferously, or stay shtum and sue immediately IMO. I'm sure their lawyers are a little better than TW's.

In my opinion TW is using very crass techniques here. For what it's worth I think his allegations are total rubbish. He may be heading for trouble.

[garymott] 07/12/2015 21:53

Also didn't bother to comment on the agreement with BT with reoccurring revenue!