Avanti Communications Share Discussion Threads

[woozle1] 14/2/2014 09:10

Debt didn't worry them before but they still refinanced a PIK that gave the holders an IRR of 20%+. And they probably think that they'll part refinance this equity and then they award themselves loads of nil priced options to avoid dilution. I'd really like to know what kind of performance metrics the board have for measuring the success of the executive. It must be capital raising and capex. For surely it is can not be performance of the satellites because otherwise they would have lost their jobs some ago.

[divinausa1] 14/2/2014 07:42

Rogk 13 Feb'14 - 15:01 - 196 of 201 0 0

Directors bought to shore up the share price not because they thought it was outstanding value, is my guess. One could even say it's Avanti's money their buying with becoz of their Avanti pay packet.
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fatty shorted QPP at 9p a few months later 40p

im a buyer on any short he is in to including his recent short on gbo

[caribbeanrob] 14/2/2014 07:20

"in the H.O.P.E the share price would fall"

[buywell2] 13/2/2014 23:08

Chart looks set for another drop

[jeffian] 13/2/2014 23:03

Well, yes, that helps a lot, thanks, sidam. But why do you think that the COS should now stick at $75m when they have been rising directly in line with revenues for the last 3 reported periods? Also, whether cash breakeven requires $142m or $175m, that still requires a considerable steepening of the growth curve when our current mat is $50m, with associated losses to be covered in the meantime.

[sidam] 13/2/2014 22:49

to Jeffian

This may help. Roughly, the cost of sales (COS) is the cost of operating ground stations,fees to immarstat? for orbit management and satellite insurance. These should not rise significantly until HYL 3 is launched. In the six months just reported, COS also included provision of $1.4m against virtually nil in the corresponding period. Some of those costs are in pounds and euros. The $ fell by 8% in the period, so the underlying increase in COS was small. The other direct cost is satellite depreciation,which is up as it is in for a full period. There are no other direct COS so in theory incremental gross margin is 100%. Including depreciation COS are now annualised at say $75m plus say $30m for administration costs (in pounds which will fluctuate with $ rate) and $37m for interest. Therefore revenues of $142m are required to get to breakeven. If the company can generate $280m of revenues from HYL 1 & 2 it should earn about $140m pre tax. If they can generate $280m of revenues gross margins should be 280 - 75 = 205 which would be 73%. Hope this helps.

[divinausa1] 13/2/2014 22:06

Woozle1 13 Feb'14 - 16:38 - 966 of 971 0 0

Jeffian .. once you back out the ex gratia payment the gross margin is going backwards .. this is not good .. these type of businesses have fixed costs and benefit from scale and operating leverage .. we should expect to see a steady rise in the gm as the revenues come in .. that this is not happening tells me that the company is continuing to strike contracts at uneconomic rates .. as I have said a few times DW did with the Avanti ScreenMedia with disastrous consequences .. the few things that stop me shorting are management can lie for longer than I can stay solvent and you may get an opportunistic bid from a larger operator; though with the amount of debt this may be a deterrent.
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debt does not seem to worrythe directors

why do you think they bought near on £1 mil worth of shares between them towards the end of the year. im following the money on this one. Shorters out in force but the share price inraday says the market is having none of it

[jeffian] 13/2/2014 19:05

Yes, that's what I thought, fastbuck. I wanted someone to show me where I had gone wrong! As Woozle1 points out, in the short term at least, the GP is going in the wrong direction with 'cost of sales' rising in line with sales, if not more. They have also plugged in $37m of annual interest payments. As I said originally, there appear to be $70m of fixed overheads (before any amortisation or depreciation), so if not $175m, what revenues do you see as necessary to cover this?

[fastbuck] 13/2/2014 18:26

Jeffian they won't need $175m. The cost of sales does not increase at anywhere near the same rate with the sales in this business after all it's a little like selling adverts on TV, your selling spare capacity. You have the x number of base stations and running costs but as you sell more capacity these costs don't increase hence the competitors showing a larger GP% which Avanti will get if they get large enough revenues

[woozle1] 13/2/2014 17:35

Just to give you an idea how far AVN are away from achieving anything that looks sensible Eutelsat and Inmarsat have GMs of over 90%! Let's assume then that AVN has less scale, then they should be hitting a GM of 80%.

The key is the price at which AVN are selling capacity. In 2005 the price was around £2,300 per MHZ per month and HYLAS 1 has 3,000 MHZ capacity. So let's say they get £2,000 per month, the maths in £2,000 x's 12 (no of months in a year) x's 3,000 (total capacity). That equates to £72m per annum. Clearly, they are no way near that and they have 2 birds in the sky and Hylas II has nearly three times the capacity of HYLAS I.

We know that HYLAS is 45% sold. My guess is that they are selling bandwidth at £1,000 and below.

And re the gross profit, if you back out the ex gratia payments, the company made £3m pre depreciation.

W

[jadeticl3] 13/2/2014 17:21

So the results that were going to show one way or another whether this company was clearly moving forwards or backwards have done nothing of the kind. Those who knew it was a con are now con(vinced), and those who believed it was a winner, but slow to get to the front, are satisfied that it will get there in the end.

So is it the next results that reveal all?

I, like jeffian, am a simple soul and think we will get there i.e. the revenus will come through eventually and before they go bust, but what is clear is that getting there is not as simple as some thought. But enough news is surely in the open to see that AVN has a realistic chance of being successful. I cannot agree that this is a short.

As for a Rights Issue--I was disappointed that Severfield R (one of my big holdings) had a Rights Issue 'recently' due to bad news, and it was a difficult time. The company shares have risen dramatically since then so I am OK on this score. Even so I am not sure how I would react if the doom-mongers are Rights.

[caribbeanrob] 13/2/2014 16:54

Oh look. Finished blue for the day after all that. Funny that.

[jeffian] 13/2/2014 16:54

Yes, but I'm trying to get a handle on where we need to be to stabilise the ship. Sure, one would expect GP to rise exponentially at some point as additional sales (should!) go almost straight to the bottom line but, for the sake of argument, if one uses the current GP of around 40%, it seems to me that we need revenues of $175m to cover overheads. If we do (and I'd appreciate comment) then we're either going to need staggering sales growth or we face several more years of cash outflow. If someone could cut through the generalities and address the figures, I'd welcome it.

[woozle1] 13/2/2014 16:38

Jeffian .. once you back out the ex gratia payment the gross margin is going backwards .. this is not good .. these type of businesses have fixed costs and benefit from scale and operating leverage .. we should expect to see a steady rise in the gm as the revenues come in .. that this is not happening tells me that the company is continuing to strike contracts at uneconomic rates .. as I have said a few times DW did with the Avanti ScreenMedia with disastrous consequences .. the few things that stop me shorting are management can lie for longer than I can stay solvent and you may get an opportunistic bid from a larger operator; though with the amount of debt this may be a deterrent.
W

[jeffian] 13/2/2014 15:20

Talking of number-crunching, anyone got a comment on #961? Do we need a t/o of $175m to stop burning cash or have I missed a trick?

[extrader] 13/2/2014 15:16

Hi divinaus1,

I used to report directly to the CEO of a major UK bank. You'd be surprised (or maybe not ? ! ;-

[divinausa1] 13/2/2014 14:53

jojaken 12 Feb'14 - 12:37 - 958 of 962 1 0


What's worse, having read the results and crunched the numbers, I just can't get things to add up!
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i think the directors are better at maths than you! they have bought near on £1 million worth of shares towards the end of last year at higher prices so i guess there maths is good...

[woozle1] 13/2/2014 13:04

bonds trading 102-4. So they haven't cracked, yet......

[woozle1] 13/2/2014 11:32

Simon,
Re the increase in debtors, the company are definitely juicing the top line by increasing the debtors. This of itself is not a problem if the debtors are high quality and will pay you back. Interestingly, telcos are profitable in Africa because customers pay upfront. Avn are providing a service and then billing. You simply can't do business with customers with poor credit ratings on such a basis. That they are doing this either reflects commercial nativity or weak competitive position. I suspect the latter. It is clear to me now that the value of these assets will not realised and that Avanti's satellites are looking more like white elephants in the sky.

I'd be very interested to know where the bonds trade as debt markets have a habit, although not always, of being a good leading indicator.

W

[jeffian] 13/2/2014 09:47

I'm a simple soul, me, and want to get my mind round the figures without talk of "backlog" etc. It seems to me that we have annual operating expenses running around $33m and an interest charge of $37m (assuming the new bond replaces all other loans), i.e. a fixed overhead of around $70m. Our Gross Profit seems to be 40%. Therefore, without worrying about depreciation/amortisation, it seems to me that we need to achieve revenues of $175m to reach cash breakeven. Is this about right or am I missing something?

[geheimnis2] 13/2/2014 09:34

im out, i'm afraid

sick of waiting for this story to come good

[ricardo125] 13/2/2014 09:07

I just pray that Avanti isn't insolvent. I would hate to see Mr Rothschild not get his money back.