Avanti Shares Tumble On Sluggish Sales Despite Growth Promises

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By Olga Cotaga

LONDON--Shares of Avanti Communications Group PLC (AVN.LN) fell as much as 11% Thursday after investors gave short shrift to the company's bullish revenue forecast after reporting a slightly narrower half-year pretax loss on disappointing second-quarter revenue growth.

Avanti reported a pretax loss of $45.5 million in the six months to end-December compared with a loss of $48 million for the same period last year, as revenue fell slightly to $31 million from $31.1 million.

Fiscal second-quarter revenue was 28% higher than in the first quarter, but still lower than what the company was expecting.

Avanti repeated that it expects 50% growth in continuing revenue in its current fiscal year, on a constant-currency basis, underpinned by "substantial" recent orders.

The provider of satellite data-communications services in Europe, the Middle East and Africa recorded $40 million of new contracts during its fiscal second quarter, mainly with government and large telecoms customers. It expects this to make a strong revenue contribution in the second half of the year.

"Investors took the news with a pinch of salt," said Eric Beaudet, analyst at banking group Natixis, noting that over the past three years the company "overpromised, but underdelivered".

Natixis's Mr. Beaudet said that he believes in the long-term potential of the company, but the problem is in its short-term performance. The market will react differently once the company starts delivering two consecutive quarters of good results in line with previous expectations, Mr. Beaudet said.

Avanti shares at 1220 GMT had dropped 13.25 pence, or 9.6%, to 124.75 pence a share, after falling as low as 122.5 pence earlier in the session. They are currently down 45% over the past 12 months.

"Avanti is strongly capitalized with more than adequate cash headroom. In a pioneering market, the combination of a good product, good customers and a fully funded model assures us that Avanti has a successful trajectory ahead," said Chief Executive Officer David Williams.

Avanti's optimism looks warranted, said analysts at investment bank Jeffries. Assuming revenue from the recent contract wins is recognized over one and a half years, the $13 million in incremental revenue expected for the second half of this year "goes a long way to validate the reiterated guidance."

The bank kept its price target for the company at 285 pence per share and has a buy rating on the stock.

Write to Olga Cotaga at [e-mail], Twitter @OlgaCotaga

(END) Dow Jones Newswires

February 04, 2016 09:05 ET (14:05 GMT)

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