Avanti Communications Share Discussion Threads

[chriscallen] 17/12/2015 21:12

I do feel a bit sorry for the AVN management as they must know now that you can't please all of the people all of the time. Like many start up companies they made the mistake of thinking that costs would be contained, that sales would hit the forecasts and that profits would come in earlier. In fact anybody who has actually walked the walk knows that costs are bigger and come earlier in the process than forecast, that sales take longer to win and come with costs or discounts that were not anticipated and profits disappear over the horizon faster than the Lone Ranger.

But AVN have hung on in there. Yes they have probably taken on customers they shouldn't have done but it did generate cash... and as the man said companies go bust for lack of cash not lack of profits. Now they have got the capacity and good contracts with blue chip customers and its just a matter of time and patience. Provided they get the growth rate in the core clients they will hit the targets and cash will flow in.

Now some have made a point about the book keeping of the sale of slots. Any accountant will tell you that there can frequently be different approaches showing different results. For myself I simply ask what they got. They liquidated certain rights that they were never going to use and got in return capacity aimed at Nigeria which will enable them to sell there well before Hylas 3 is in action. It gives them earlier income and a chance to get ahead of the competition and in reality cost nothing.

I like a management that learns from its mistakes and AVN appear to have done that too.

[nw99] 17/12/2015 20:52

Nice move up

[michaelmouse] 17/12/2015 20:49

A rhetorical question. When is a loss a loss or a profit a profit? Answer: Not until you take it. Sorry if that sounds patronising but bear with me.

In 2002, I invested in a company called Ashtead, I was still a relative novice but I noticed that the company had considerable assets and that the market cap. was around or below the value of it's assets. What I hadn't quite grasped (through naivety) was the size of it's debt. I originally bought shares for 30p. However, the company started to look like it was in trouble and about to break it's banking covenants. I watched as the price sank from my 30p purchase price to an intra-day low of around 1.5p. However, the company survived chiefly because of it's assets and as the share price and confidence began to return, I bought again at 15p. The price rose and I felt so proud of myself having survived the experience that when my holding turned a small profit I sold my shares. Hurray. Ashtead's share price today is £11.27. Even my original 30p purchase would have 37.5 bagged. My 15p purchase would have 75 bagged. Oops.

Make what you will of my anecdote, but it was an invaluable and chastening lesson for me. Catch a few of these companies in your investing lifetime and the rest of your portfolio becomes almost immaterial.

[michaelmouse] 17/12/2015 19:55

dangersimpson2 - Despite our differing stances on this stock I quite like reading your posts. For some reason they always make me smile and the phrase "too clever by half" comes to mind.

It will be interesting to see how this story plays out over the long term. Personally I think you and your shorting chums have failed to spot the elephant in the room, but I could be wrong of course.

[michaelmouse] 17/12/2015 19:38

hpcg - The honesty of your reply does you credit. I tip my hat to you sir.

This is not advice, but I sincerely hope that you have already booked the profit from your short? Don't get taken in by the de-rampers and compound your original errors.

[dangersimpson2] 17/12/2015 18:23

GaryMott,

Your revenue forecasts in your model are too low - chosen deliberately to suit your shorting. You now need to revise your analysis.

My model has $83m this year and $112m next year so if Avanti do deliver $90m it would be a slight enhancement on my model. They've been overly optomistic on this front before so I don't think my model is that far off TBH and certainly not chosen to meet a certain conclusion. The correct way is to make some assumptions, model the impact, draw conclusions and check the progress not the other way round.

The real issue is not revenue growth - the company can have rapid revenue growth and still be worth nothing to equity holders - but pricing. They need reduced COS (paid in cash not accruals) and for any sign of that we need the results not a trading statement.

Danger

[jeffian] 17/12/2015 17:40

Unfortunately, it doesn't "defy logic", it's the market saying "Show us the Money!". I have a very similar shareholding profile to that described by hpcg (excluding the short), having bought in originally on the successful first launch, taken a loss then bought back in on the 'dip' (ha!) to 290 after a disappointing TU. The real problem is that AVN failed to meet the revenues on which those bullish early projections were based and the market now wants to see the cash in the bank before it gives credit to AVN management.

[nugacity] 17/12/2015 17:25

hpcg, I admire your honesty. This share defies all logic when it comes to prices so I doubt many lth are in pocket - I know I am not.

The lure of £23 before #1 was launched seemed sensible at the time. I thought £7 was sure to be £9 overnight - alas it dropped to £3.50 , and ever since it has been unreadable.

[jeffian] 17/12/2015 17:18

"What has been demonstrably lacking is revenue." Or, more precisely, cash. As someone else said above, management here are guilty of obfuscating about revenues and 'backlog' etc. Didn't they book some revenues a couple of years ago to a company to which it turned out they'd advanced credit to 'pay' them?!

[hpcg] 17/12/2015 17:01

michaelmouse - you are completely correct, my timing on Avanti has mostly, but not entirely, been terrible. I bought at 450p, did not sell at the top, bought more on the way down when the directors did. I sold some at 330p and the rest at 260p. Within that time I did manage to ride one trade from 200 to 330, where I should have sold them all and taken my losses. Then shorting this leg down has also been profitable.

Absolutely on the way up I was taken in by the ramping. Absolutely I was taken in by director speak about growth when I should have done my own analysis. I still think the technology is good and the launches have been excellent. What has been demonstrably lacking is revenue.

[nugacity] 17/12/2015 15:30

If Avanti are guilty of focusing on one thing I can understand that.
They built satellites, they put them on a rocket, they launched them perfectly , they got them into orbit better than perfectly , saving loads of fuel for future use, the commissioned them and all is in place for middle men and end users.

They have financed two more to launch within a couple of years.

If they are talking about contracts with middle men what else is there?
Those talks only have to cover costs for a very rosey future.

I have heard people at football matches discussing tactics the manager needs when their team leads 5-0 ..... have we met hpcg?

[michaelmouse] 17/12/2015 15:28

Yes do enlighten us all dangersimpson our local chippy (fish and chip shop) is running out of newspaper. ;)

[pennyfalls] 17/12/2015 15:20

DangerSimpson...

Over to you...

I did notice your model was also based on 23% uptake, so that also needed revising upwards..

[michaelmouse] 17/12/2015 14:58

hpcg - Excuse me for being sceptical but when did this "Damascus moment" regarding Avanti occur in your life?

Looking back at the threads you appear to have gone long when the share price was pretty much at it's height and certain tipsters were predicting that the share price was going to rise to infinity and beyond. This was even before they had launched Hylas 1. In truth, I wouldn't have dreamed of investing at that point, and it was typical and highly irresponsible of tipsters to be shouting from the rooftops that Avanti was a screaming buy. That's undoubtedly why they are tipsters and not investors.

You now seem to have gone short when the same tipsters are now shouting that Avanti is going to hell in a handcart, and once again investors are being fed spurious projections regarding revenues, debt repayments etc.

Please spare us your revenue, cashflow, debt servicing (etc.) predictions, since I'm not convinced they are your own and quite frankly I'm not interested in the rantings and ramblings of tipsters either. Those who can invest successfully do and those who can't become tipsters.

Ultimately the fate of the company is in it's own hands no matter what you and I write on this BB.

[akajimmy9] 17/12/2015 14:21

well considering they announced today reoccuring revenue is likely to be 50% higher than the previous year, so $90M. you prob wont be far off.

[hpcg] 17/12/2015 13:47

I should generalise the observation I made about the trading statement today from Avanti. Companies which make announcements which focus on one particular area do so only because other important areas do not look so good. No one leaves out good or neutral news. Yes recurring revenue is high quality revenue and I apologise for the tone of my reply, but Avanti is demonstrably inconsistent with the metrics it uses:

6 July statement; in this one total revenue was specified ($80m) and only growth in recurring revenue was announced.

November 2014; revenues for 3 months, a backlog figure and "repeat rate remains over 50%".

May 2014; revenues for 9 months, a backlog figure, and no mention of either repeat rates or recurring revenue.


I highlight only the interest payments because that alone shows just how bad the situation is. To highlight once again, interest is almost half the likely annual revenues.

The operating cost and SGA which are also recurring just make the financial situation worse.

Finally a prediction. Revenue for financial year to 30 June 2015 was $85.2m - I predict that year to 30 June will be less than $93.7.

[weatherman] 17/12/2015 13:19

Avanti clearly has support from the UK government as part of its long term growth plans in the space sector. This is reflected in this BT deal. There are only two satellite operators in the scheme with a total potential pot of £120m.

From the Avanti website...
"""What is the project worth? The Government has said that 300,000 homes and businesses are eligible under the initiative to benefit from the government funding on a satellite broadband service delivering up to 30Mbps. The average cost of a package is around £34 a month of which Avanti receives around half, so this is a total retail market opportunity over £120m a year. As the leading provider of Ka band satellite capacity in the UK, we would expect Avanti and its service providers to win a significant share of the business form those homes who chose to take it up. UK Broadband penetration is currently 78%.

If we assumed that one third of homes accepted the offer of free installation (the national UK average is 78%) and that Avanti gets just half of that business, (thus 38,610 homes) then Avanti’s revenues from installation and operation could be $20m per annum."""
At two thirds take up (of the national 78% average), that would be $40m to Avanti.

This deal, with government backing, has the potential to cover most of the interest payments.

[michaelmouse] 17/12/2015 12:10

hpcg - You said:- "name another company that focuses on recurring revenue." I named Trakm8. As you can gather I know the company very well. Recurring revenue has always been a big focus in Trakm8's reporting because it underpins it's financial security. It's the same for all companies. There are lots of companies that focus on recurring revenues. Finding companies with a high percentage of recurring revenues and high margins is the holy grail of investing.

By the way, try not to be patronising with lines like "lets play spot the difference between a Trakm8 trading statement and an Avanti statement." I haven't compared the companies, I just answered your question referred to in the paragraph above.

If you want patronising, I would say to you, stop relying on the opinions of others to guide your investing. On the one hand you say the company is overburdened with debt and heading for bankruptcy and in the next breath you say that you don't need to bother with all the figures. Not sure how that works?

[hpcg] 17/12/2015 11:31

michael - lets play spot the difference between a Trakm8 trading statement and an Avanti statement.



Highlights

· Group revenues up c.95% year on year

· Annualised recurring revenue up 60% to £7.3m

· Trakm8 orders received up 38% year on year (like for like basis)

· Trakm8 revenues up 73% year on year (like for like basis)

· Strong traction in new contract wins announced in recent months

Trading for the year ended 31 March 2015 has been in line with the Board's expectations, with strong growth in revenues and profits compared to the prior year. Revenue for the new financial year ending 31 March 2016 is now expected to be ahead of previous management expectations, with profits comfortably ahead of previous management expectations

Outlook

The outlook for the new financial year continues to be positive. Recent contract wins and the continuous increase in devices reporting to our servers means that the Group expects to achieve another strong trading performance in the new financial year. The Board now expect revenue for the new financial year ending 31 March 2016 to be ahead of its previous expectations, with profits also comfortably ahead of previous expectations.


It might just be me, but trakm8 seems to mention all revenues, profits and expectations. For Avanti, below, however only the recurring revenue growth is important. Indeed reading that they might not even bother with other types of revenue.

This underpins the expectation that Avanti will meet its full year target of approximately 50% growth over the 2015 recurring revenue of $60m. Non-recurring revenue opportunities that could augment this core business growth are targeted and assessed on their contribution to cash flows. This strong trajectory revenue growth supports our fully funded business plan to launch HYLAS 3 and 4 in 2017.


This would be fine, if one hasn't read the last annual report. You don't even need to bother with all the figures, just the $40m interest bill should be enough to put $90m of recurring revenue into perspective.

STRATEGIC REPORT
FINANCIAL REVIEW
EBITDA
EBITDA (before share based payment charges) increased to $16.0m
from $1.7m in 2014. This was a result of the revenue growth and the
changes in cash costs outlined below.
Costs of sale decreased 3.3% to $83.8m (2014: $86.7m). This
reflected the growth in the business offset by the cost associated
with the exceptional sales of equipment for an infrastructure project
in the prior year. Cash cost of sales (excluding depreciation) were
$38.0m (2014: $39.4m).
Operating costs increased 2.3% to $35.6m (2014: $34.8m). This
reflected the growth in the business, the fact that an element of
theŽcosts are largely fixed and movements in Sterling versus the
USŽDollar.
Loss per share
Loss attributable to shareholders of $73.1m (2014: $87.2m), which
included a net interest expense of $40.5m (2014: $39.0m), results
inŽa loss per share of 61.5 cents (2014: loss per share of 81.2 cents).

[michaelmouse] 17/12/2015 10:53

"Name another trading statement which focuses on "recurring revenue"."

Trakm8.

"Total recurring revenues increased by 65% during the period to GBP4.0m (2014: GBP2.4m), which are generated from increased numbers of units reporting to our servers. These revenues remain the core of the Group's business model and financial security. Gross margin percentages have also benefited from the higher levels of service revenues."

As they say:- Recurring revenues are core and provide financial security. Common sense really.

I wish more companies would report recurring revenues.

Anyway don't pay any attention to me. Trakm8 has only 20-bagged for me so far.

[hpcg] 17/12/2015 10:40

GaryMott - the shorters (I am short, was long for years) are irrelevant. The big holders are selling out because Avanti is clearly going to default in its debt. This trading statement is more mealy mouthed obfuscation. Name another trading statement which focuses on "recurring revenue".

The obvious reason for the unexpected trading statement is the share price movement. The 140p trade is your reference point. That is how low someone is prepared to sell in volume, and that is the price it takes for someone to buy in volume.

This company has been a big disappointment, and unfortunately it will end in bankruptcy.

[garymott] 17/12/2015 10:00

That may be so but shorters always choose data very deliberately to spread doubt to suit their aim. So whenever the data is not representative, it should be challenged.

The same was true with caukkwell. First it was the capacity of the satellites were too small to compete with the big boys, then the selling price per MHz was unrealistic, then 'where are the contracts with Tier 1 telecoms' to name but three.

I'm also not convinced by dangersimpson's assumption that costs will stay as high as 60% of revenue in future. I think this is much too pessimistic. The outcome of his model depends hugely on this.

[jeffian] 17/12/2015 09:32

I think shaunstar has a point though. "Revenue forecasts" are all very well but the proof of the pudding is in the cashflow.

[garymott] 17/12/2015 08:59

Dangersimpson, Your revenue forecasts in your model are too low - chosen deliberately to suit your shorting. You now need to revise your analysis.

[michaelmouse] 17/12/2015 08:45

Wasn't really expecting the trading update this morning. Very welcome though. New guy brings a wealth of experience with him as well. Two key lines from the trading update:-

"The Group is expected to show strong growth in continuing business revenue in the second quarter versus the first quarter and has visibility of further strong growth into the third quarter."

"This strong trajectory revenue growth supports our fully funded business plan to launch HYLAS 3 and 4 in 2017."