Avanti Capital Share Discussion Threads

[arthur_lame_stocks] 11/10/2006 12:03

Adam

I think a bearish case would assume that the Barclub bond is worthless. That seems reasonable to me considering that it is consuming cash, not generating it, the trading outlook is so poor, it has no assets to speak of, it´s gone bust twice and the management can´t sell it.

If the shares look good value on this basis then maybe they´re a buy but I don´t think so.

I lost some money on this and wouldn´t think of buying back in whilts Fellerman and Kleiner are involved.

If there´s any value in there than I think it´s got to be in mBlox, that might give you a nice surprise.

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[adam] 11/10/2006 01:10

This is all getting a bit "i told you so". I hope that isn't why you participate on this board.

I only first bought on 11th May 2004 @ 11.17 am in 2004, 25k @ 142p, and I don't think it was I telling you to take a running jump.... maybe someone else?

The deal that has been struck with management now is probably a good thing in that it is unlikely that a better one could have been reached to the extent of their existing legal entitlements, which I don't disagree were (and are) excessive, but we are dealing with the here/now. There is at least now a clear path to exit. You just have to factor it in.

I had this same conversation with the guys at Electra and Moorfield. That the management fees were excessive, and that I was less than enamoured with the investments they were making etc... I keep call logs... Electra was keen to buy my stock and I refused (price was 140 ish). The deal struck incidentally is pretty much what they outlined to me a la hedge fund (i.e. asset fee + hefty geared profit share on upside).... well that might be fine for star hedge fund performers but not this duo. Even the Moorfield guy (who has worked with one or both Fellerman/Kleiner said they were not the most "energetic" deal makers... if you recall I think it was Jupiter that sold out and clearly Avanti found some "safe hands" for the stock... I made sure everybody new what I felt)... well nobody likes losing money so it looks like everyone has finally agreed that it was time to pull the shutters down.

So...... the question is... wots it all worth and should you buy/hold/sell shares? Anything else is just pipe talk. I am a buyer, as I see the management issue as now peripheral. Yes it's greedy, no, I don't think they deserve it, but I don't think I only invest in companies with snowy white altruistic do gooders running the show. There is a clear demarkation now.

Agree/Disagree with the following

8.5m shares in issue

Bear(ish) case:

Barclub could be got rid of in a fire sale for £4.25m (£230k per bar) on a debt free basis. (i.e. 50% face), 25%(?) turnover

Other investments inc cash and mBlox worth book value. (7.5% stock --> imputes £77m valuation last round investment prior to recent blockbuster deals. (e.g. June 2006 announcement - mBlox is currently the largest processor of premium SMS transactions in the world, clearing and settling transactions with a retail value of $400m in 2005)

Hence mBlox = 61p (£5m)
Barvest = 0p (let's assume the equity is worth nothing)
Espresso, Medcenter, Wordmap = 9p (£0.77m)
Cash = 16p (£1.4m = £1.7m less £300k severance)
Barvest bond = 48p (£4.25m), i.e. 50% of face value
Total 134p


Bull case:

Barvest bond worth 100% face: 48p uplift
mBlox IPOs @ multiple of last investment round, say 2x = 61p uplift
Barvest equity has value - ?? wotever...
other investments - they claim doing well.. c.f. June 28 update

The market is also happy that any disposals will have cash returned to shareholders either as buybacks or as capital reductions/divis (shareholder include our fully incentivised management to the tune of about 11%)

Hence downside = minimal, upside = as much as double. Time frame 12months..
If you think shares are sell/hold/avoid please explain why.

[jeffian] 10/10/2006 19:57

I don't know about "one last slice of the cake", adam, it looks like you're being legged-over again.

I sold in October 2002 having attended the AGM and suggested that the cash you refer to (then worth around 350/375 per share if I remember) would be better returned to shareholders than 'invested' on their behalf by a bunch who had already shown themselves to be singularly inept in doing just that to date. I was told to take a running jump, so I did. Since then, it's all gone sadly as I predicted and they're now doing what I suggested 4 years ago but with almost no cash and investments of uncertain value.

And have you noticed the terms? Kleiner and Fellerman get compensated for losing their jobs, but then seem to go on doing exactly the same jobs (as Avanti Partners) 'managing' the assets for 3% of NAV. That's nearly £550,000 per year! They also get a slice of any value achieved above 150/share which kicks in at 25% at £12.7m NAV rising to a maximum 40%. This is to 'motivate' them! I should say so. Apparently, although being paid off for 'losing their jobs', "Richard Kleiner and Julian Fellerman will continue to
serve as non-executive directors of the Company (for a nominal fee) with
responsibility for the day to day administrative affairs of the Company". How a "non-executive" can be involved in "day to day administration" is beyond me.

I hope for your sake there are some crumbs left after they've had their "one last slice of the cake".

Regards, Ian

P.S. My jaundiced view of Barvest (or whatever it's called now) makes me look very carefully at the language which makes you interpret it is "trading quite well" (no doubt as they intended). They actually say it is "trading ahead of forecast". The only forecast I have seen was in the 28/6 trading statement which said they expected the retained bars to make roughly the same EBITDA in 2006 as in 2005 and that was only 2 days before the year-end, so not much chance of getting it too wrong, one hopes! Whether that continues into 2007 is another matter, but keeping these entertainment venues 'fresh' is a capital-hungry business and AVA have no more capital. A freeze on capital spending would impact fairly quickly on performance as competitors invest to make their own offerings more attractive (e.g. look at what ULG have promised to spend to try to regain trade). If you look at the EBITDA forecasts for 'old' Barvest and see how a projected £2m-and-rising became nearly £0, you might not have so much faith in their forecasts! Stand by for more disappointments from that part of the business IMHO.

[adam] 10/10/2006 18:57

> If it's trading so well why have they had to lend it another 2.5m? This is the thing that gets to me.

It was the bank debt. I think that Barvest (sic) *breached covenants*. The bank used it to *demand* immediate repayment. (again - I emphasise I am guessing). Avanti, I surmise, decided to use the opportunity to do a controlled receivership, thereby allowing themselves to walk away from the bars that were not performing well. I'm not a lawyer, but I do not see how else you can put a company into receivership (and walk away from creditors, landlords) unless it has financial problems. That piece of financial engineering looks like it was a reasonable move, and it would appear that the reamining bars are (at least for the moment) trading quite well.

In 2002 you are right - there was £19m in NAV and £17m of that was cash, but for correctness I would note that there has been a substantial repurchase of shares which would reduce outstanding share capital and reduce cash. Annoyingly a big chunk was to get Laxey of their back at 190p - that really p'd me off as it was clear it was so they wouldn't be requisitioned. Oh well, I'm not really disagreeing with the basic thrust of what you are saying. It is a thorny company that has enriched the directors and not the shareholders. They have faffed around and now they get one last slice of cake and told to piddle off. Suits me.

[arthur_lame_stocks] 10/10/2006 16:59

Adam

I'm not trying to say that there is definitely no value in here, or that you might not still get out without making profit. My real gripe is that they continued to chuck cash at Po Na Na for no reason. They should have let it fail when they could have got out with a small 2.5m loss.

If it's trading so well why have they had to lend it another 2.5m? This is the thing that gets to me. This was not a growing business that needed cash to fund expansion. They bought it because they thought it was cheap, they could tart it up a bit and flog it on at a profit. Instead it has consumed nearly 11m of the groups cash and still they can't sell it and still it's presumably loss making or at least not generating any significant cash. Is there no point at which they'll hold their hands up and admit that they got it wrong? ULG's results show the market they operate in is changing and highly competitive. If it was a bad investment before, what can Avanti possibly hope to change to make it better?

[arthur_lame_stocks] 10/10/2006 16:59

Adam

I'm not trying to say that there is definitely no value in here, or that you might not still get out without making profit. My real gripe is that they continued to chuck cash at Po Na Na for no reason. They should have let it fail when they could have got out with a small 2.5m loss.

If it's trading so well why have they had to lend it another 2.5m? This is the thing that gets to me. This was not a growing business that needed cash to fund expansion. They bought it because they thought it was cheap, they could tart it up a bit and flog it on at a profit. Instead it has consumed nearly 11m of the groups cash and still they can't sell it and still it's presumably loss making or at least not generating any significant cash. Is there no point at which they'll hold their hands up and admit that they got it wrong? ULG's results show the market they operate in is changing and highly competitive. If it was a bad investment before, what can Avanti possibly hope to change to make it better?

[adam] 10/10/2006 14:42

ALS


As part of these arrangements and included in the £8.25m, the Company
has taken over Barclay's position as first charge holder for £2.5m.


In other words they have an £8.25m bond with PoNaNa (Barlocks if you prefer), £1.7m in cash + mBlox (book £5m) + 60% Barlocks equity + other bits.

m/cap £10.5m

Say

Barlocks equity = £0
Barlocks bond, say 50% face = £4.25m
Cash, less severance £300k = £1.4m
mBlox, book = £5m
Total: £10.4m

The above seems ultra-conservative and market now sees light at the end of the tunnel.

mblox should float at significant uplift.
PoNaNa trading well and yielding £800k pa on the loan
If loan trades at face then 60p uplift, similar if mblox floats at double book value. So downside limited upside 120p less management fees + odds and sods like espresso and if Barlocks equity has value.

Not hugely exciting but a good percentage bet. I'm hoping to get my investment back in real terms... not one of my better investments have to admit...

[arthur_lame_stocks] 10/10/2006 14:10

If they´re now going to pay themselves according to the NAV shouldn´t they take steps to revalue Barlocks down to it´s realisable value? I think it´s safe to say it´s not worth as much as it cost otherwise they would have sold it.

[adam] 10/10/2006 00:24

In other words - Controlled Voluntary Liquidation.
Looks like reality dawns.
It seems like they were going to do a rights issue and got jumped on by institutional shareholders - I wasn't approached by the way.
so... PoNaNa trading well but nobody wants to buy it (duh?).
Still paying best part of £500k+ to run a £9m company, all be it now tidied up.
Then £300k severance.
As Churchill said "This is not the end, this is not even the beginning of the end. It may, however, be the end of the begining"

[jeffian] 04/10/2006 09:42

In practice, he has inadvertently 'shorted' it. This may yet prove a wise investment decision!

8-)

Regards, Ian

[frank1e] 29/9/2006 13:02

and what does 14000= then?
lol

[pachandl] 29/9/2006 10:38

Frank1e - 60:1 consolidation so 6000 = 100, 120 = 2 but 119 = 1. That's the way the cookie crumbles.

[jeffian] 27/9/2006 15:16

adam,

"There were clearly some poorer units - hence the controlled receivership, so I for one found the EBITDA figure of £2.35m (before head office costs) useful to know." But the point of my previous post is that this sounds remarkably similar to what was being said 2003-2005 and look what happened! The initial 28 units were 'cherry-picked' from Po Na Na (so why should there be some "poorer units"?) and were all profitable at the operating level. EBITDA was supposed to be sustainable. Then it wasn't. All I'm saying is that, before building a valuation on the premise of 18 profitable units producing sustainable EBITDA of £2.35m, it may be worth considering whether this is a case of (recent) history repeating itself.

Regards, Ian

[adam] 27/9/2006 11:43

> doesn´t seem anything like enough to justify lending them over 8m pounds IMO.


Err, I doubt they had a choice. I suspect (strongly) that they breached covenants and the banks were demadning payment. I don't see how else they could have managed a controlled receivership.

[arthur_lame_stocks] 27/9/2006 11:15

"I suspect that Avanti would sell Barclub in a snap for the figures A-L-S alluded to."

That´s true Adam. I think my figures were very generous. The press were quoting figures of 10-15m when they owned 28 bars. The point I was trying to make was that even in a very good case scenario the equity value of Avanti´s stake in Barvest/Barclub isn´t that great and doesn´t seem anything like enough to justify lending them over 8m pounds IMO.

"We know that the interest will be 10% of £8.25m due to Avanti.. thus EBTDA is £1.5m. Tax will come after the D and A (not as ALS suggested), but I don't know what if any would be payable, say £200k."

I did subtract depreciation from the pre tax figure but not goodwill amortisation. I was under the impression that this was not counted for tax purposes. But i´m happy to be corrected if i´m wrong.