Avanti Communications Share Discussion Threads

[2350220] 11/11/2013 12:25

Great posts Sidam.
Thank you,
John

[jeffian] 11/11/2013 11:56

"....often would require those to go to competitive tender..."

I'm probably displaying my ignorance here, but I thought AVN's usp was that it covered areas that others did not, so who else would be able to tender?

[sidam] 11/11/2013 11:07

Turning to point 1) why could backhaul be large? I post below an extract from a note that I wrote for a few 'friends'.


Is mobile backhaul the key?
Group management has historically indicated that Ka band satellites could cater for this market. The growth of mobile communications and in particular data has led to a shortage of bandwidth between mobile base stations and their networks. Additional capacity will require either expensive fibre optic cable to be laid or an alternative answer to the problem. AVN has now demonstrated through pilot schemes that its Ka band satellites can meet this demand. Because of its efficiency, this can be done at an economic price to the operator and at a level to meet AVN's base case pricing model.

The first backhaul revenues were generated in July 2013, the start of the current financial year and the Group has agreed framework agreements with a number of mobile operators, so the service can be rolled-out without further individual contract negotiations.

It is understood that operators with some 400 base stations requiring more capacity are currently starting to use AVN to a limited extent. Depending on whether a base station is GSM, 2G or 3G, the demand per station falls between 5 to 10 Mhz. Therefore, 400 potential sites could require 2,000 to 4,000 Mhz of capacity compared to HYL 1 capacity of 3,000 Mhz. Furthermore, extrapolating this, over the geographic coverage of HYL 1, 2 and 3 (to be launched in 2016), results in results in potential demand for 80 Mhz or four times AVN projected available bandwidth.

So the potential demand is there!

But management has still to deliver!

[sidam] 11/11/2013 11:03

to mjames

I apologise for the long delay in replying to your post of Nov 3. You appear to have two points - 1) will backhaul be a large revenue generator? 2) If so why are current revenues and backlog so small? Firstly, I shall try to answer point 2.

I think that management were too optimistic on the time line from initial contact, trial and contract. Secondly, management did not realise that this type of major company would require separate negotiations for large contracts and often would require those to go to competitive tender. To get over point two, they moved to framework agreements, which take time to negotiate. That should mean that individual country or area managers can now use the framework to sign contracts without central clearance and individual tenders. I understand that first live backhaul contract went live in July. But it does mean that the roll out could now be quite fast. However, smaller contracts may be only for a few months and may therefore not get into backlog unless they went through a 6 months life. That is my explanation of the lack of visibility.

[wilksey1] 07/11/2013 12:35

looking a bit better today quite a few buys going through

[count chris] 06/11/2013 20:19

Well at least there's no disposal costs. They just have to park it in the graveyard orbit.

[blender] 06/11/2013 10:13

I understand it is the amount of propellant they have left. Therefore, they can be pretty accurate when they estimate 3 years more operation. From what I recall, they got it nominal amount by proposing a concrete plan for it including orbital slot. Just wonder what this concrete plan is?

[count chris] 04/11/2013 22:28

I *think* one of the main factors is when they run out of fuel for positioning which depends on how much and how efficiently they have been moved around.

[sg31] 04/11/2013 19:00

Satellites often exceed their design life. Obvious really, if you build it to last 10 years you are going to build in a safety margin in. As a constructor you would want to make sure they exceeded design rather than fall short.

I suppose you could code one of the computer chips to fail exactly 10 years after start up but that wouldn't earn you many repeat orders either

[ttny2004] 04/11/2013 18:45

And as someone else already stated they want the satellite position

[mjames20] 04/11/2013 18:04

John,

"They've bought a ten year old satallite which has a designed life expectancy of thirteen years."

No, you didn't read it right.

Artemis is past its 10-year design life but can still support three more years of operations, according to an Avanti press release so it is now operating beyond its design life. Worse than you thought. Could fail at any moment but nice bit of optimism from Avanti says this won't happen for three years. Guess somebody took a look!

[2350220] 04/11/2013 16:34

Oh yeah, your point b is a very valid idea I hadn't even thought about.
Good, especially as they had all that agro about their positioning last year.

Thanks for the very prompt reply jeffian.

All the best,John

[jeffian] 04/11/2013 16:13

John,

a) they didn't pay much - if anything - for it and
b) it gives them control of that position in the future

"Avanti is also pleased to announce that it has signed a Memorandum of Understanding with the European Space Agency in relation to the acquisition of the Artemis satellite for a nominal sum. This satellite, which has a minimum of a further three years of useful life, occupies an orbital position at 21.5 East and gives the Company access to new opportunities."

[2350220] 04/11/2013 16:05

Have I got this right folks?
They've bought a ten year old satallite which has a designed life expectancy of thirteen years.
Did I read that right? If so, it sounds a bit odd.

John

[martincoops] 04/11/2013 02:25

Posted: October 28, 2013


3The governing council of the European Space Agency has approved the sale of the 12-year-old Artemis experimental communications satellite to UK-based Avanti Communications, an ESA spokesperson said Friday.


Artist's concept of Artemis. Credit: ESA

Outfitted with Ka-band and S-band communications equipment, along with a payload to supplement Europe's EGNOS aviation and maritime navigation service, Artemis is past its 10-year design life but can still support three more years of operations, according to an Avanti press release.

Launched in July 2001 by an Ariane 5 rocket, Artemis created the first laser data link between satellites in different orbits, it was the first satellite to be reprogrammed in orbit, and it provided data relay links for the Envisat Earth observation satellite and Automated Transfer Vehicle missions to the International Space Station, according to ESA.

Deposited in a lower-than-planned orbit due to an Ariane 5 upper stage malfunction, Artemis boosted itself into its operational orbit, becoming the first satellite to achieve geostationary orbit using electric propulsion.

Artemis is positioned at 21.5 degrees east longitude over Central Africa, putting all of Europe in view of the satellite's communications payload.

The Artemis mission, valued at $1.5 billion when adjusted for 2013 dollars, was also a trailblazer in mobile satellite communications through an L-band system now widely used by commercial operators.

But ESA recognized the waning utility of Artemis to its institutional users and issued an announcement of opportunity in December 2012 to solicit proposals from private satellite operators to take over the mission.

ESA also offered its rights to the 21.5-degree east slot through frequency filings with the International Telecommunications Union, which allocates radio spectrum for satellites.

The space agency selected a bid by Avanti Communications to take ownership of Artemis for a "nominal sum," according to an Avanti press release.

Franco Bonacina, an ESA spokesperson, confirmed Friday the ESA Council, which includes representatives from the agency's member states, has approved the transfer of ownership of Artemis from ESA to Avanti, adding the contract should be finalized by the end of 2013.

Bonacina declined to disclose the price tag attached to the sale.

Avanti said Oct. 3 it expects to update the market on its plans for Artemis after the sale's final approval.

In its December 2012 solicitation, ESA said Artemis could be used to introduce innovative technologies into the commercial telecommunications marketplace and provide optical communications services, radio data links to aerial drones, conventional aircraft and satellites, machine-to-machine services, and serve as an experimental platform to test radio interference mitigation measures.

ESA still plans to use Artemis as a backup to NASA's tracking and data relay satellites during the final Automated Transfer Vehicle mission to the space station in 2014

[mjames20] 03/11/2013 20:53

Yes, thanks for sharing, Useful information. I would be interested on your thoughts on how much mobile backhaul business they can get. I think it was around 1% of turnover for last year. It look like the take up for broadband services in the emerging markets is no where near what they anticipated so they are going to have to look for other sources.

[martin3042] 01/11/2013 08:17

hi miller, i think if they go below 5% then they have to notify.

[buywell2] 31/10/2013 22:24

Chart set up now looks a bit iffy

Like some of the posters here

[wilksey1] 31/10/2013 12:32

good reading sidam appreciate that lets hope it goes to plan

[peterblok] 31/10/2013 12:31

Thanks for that sidam. Hope you're right and equally hope I make it to 2018 !!

[mark of the rushes] 31/10/2013 12:28

Thanks for sharing Sidam.

[sidam] 31/10/2013 11:47

Using my numbers, the DCF value (at 12%) for HYL 1 and 2 is now £5 per share and will reach 590p in June 2015 when the large negative numbers have passed. Using consensus numbers and 2.8% growth, I get a value of around 400p.I think the real driver for revenues growth is Mobile back haul. I can post on that if anyone has interest.

Using capacity, HYL 3 could have a DCF value of 200p when ( and if) successfully launched in 2016. If mobile back haul is the key, my guess is that HYL 3 will fill at a faster rate. HYL 4 will flow and my guess is to replace Artemis which AVN has purchased from ESA. in 2018, my projections give HYL 1 and 2 EPS of over 90p. On 10 times EPS, I get a price of close to £10. The interest cost of the bond (£25m) will go in 2019 which should cover any operating loss of HYL 3 and 4.
My projections give an asset value of around 350p in June 2018 and 450p in 2019. I assume that no operator would launch a satellite if it were not 'worth' more than cost - so the shares could be a interesting long term holding.

[sidam] 31/10/2013 11:34

My targets and thinking.

I have built a model for HYL 1 and 2. It is much more optimistic than consensus, but here is my reasoning. The company has stated that it was ebitda positive in June 2013. Using satellite COS as in the previous posting but adding £1m, it appears that annualised satellite and operating cost of sales ex dep and share based payments was around £30m or £2.5m per month. So that must be the June 2013 minimum run rate for revenues. In fact I have used £2.7m for revenues to give a margin.

If that is roughly correct, revenues will need to grow by 6.6% per month to get to the Cenkos number of £50m (consensus is £49m). I am aware that growth will not be on a straight line basis, but that is the easiest method for a model.

On that basis, revenues in June 2014 would be just over £5.8m or roughly £69m annualised.

On that number monthly growth would have to decline to 1.3% to reach consensus of £76m to June 2015. I fully realise that it is harder to grow when a company gets larger. (£10m on £40m is 25%, but £10m on £50m is 20%) However, Cenkos have a projection of £99m for HYL 1 and 2 for 2016 which is a growth rate of 2.8%. I do not consider that it is probably that the growth rate will fall so far in 2015 and then accelerate in 2016. Therefore I consider that consensus estimates are too low for 2015. My number is over £90m for 2015, well over £100m in 2016 with full capacity in 2018. More follows:

[sidam] 31/10/2013 10:41

to wilksey and mjames

This may be a bit long, but I hope it helps. Firstly targets and could the shares get back to over £6. I seriously think so and my target is £9 to £10 but it is also timing which my guess is early 2018 and then quite a bit higher two years further out. I explain why I think that later.

Satellite cost of sales is substantially fixed. Last year this was in round numbers £3.1m for materials and £9.4m for satellite position management, insurance and ground stations. Management indicated that this would increase by about £1m in 2014 as some of the costs were not in for a full year.

As costs are basically fixed,there is no marginal cost of sales. So in 2014 COS (ex dep)should be around £13.5m and consensus revenues £49m giving gross margin before depreciation of £35.5m that is your 75%.

I will post a little later on my targets, but I hope the above has helped.

[mjames20] 30/10/2013 22:50

SInce the board has gone relatively quiet, I have a question. The accounts show turnover of £20.6m and cost of sales of £12.5m meaning the gross margin is 40%. I would have expected this to be much higher, perhaps closer to 75%. Why is the gross margin so low? What expenditure would be included in cost of sales?

Thanks.

Note, I have excluded depreciation.