Wednesday, 10 July 2013

Avanti (AVN) ... palm to forehead (THWACK!)

Wednesday 10th July 2013

Palm to forehead (THWACK) this morning for holders of Avanti Communications. 

U woz warned ... Prior AVN blogs

As of yesterday, Bloomberg consensus had £31.5m of revenue pencilled in for FY 2013. This morning, Avanti indicated that its actual revenue would “... likely be up to £10m below previous market consensus.” I.e., around £21.5m. It’s worth bearing in mind that consensus forecast 2013 revenue has been on a downward trajectory for some time. Back in 2010, analysts had projected up to £124m for FY 2013 revenue. In 2011 it was pared down to c. £92m. Lower still in 2012 to c. £54m. And analysts started this year forecasting c. £34m for FY 2013 revenue.

The garden path appears to begin with the company’s reported order backlog. In its last interims (12 Feb 2013), the backlog of firm orders was reported to be £290m. Today’s trading update suggests these orders are somewhat less firm. The group’s backlog over the next three years now stands at:

FYE June 2014: £42m

FYE June 2015: £46m

FYE June 2016: £40m

This implies that £162m or 56% of the prior firm backlog is now expected to commence from mid 2016. Given the poor revenue path to 2013, I would question the quality of that £162m.

AVN’s net debt position has worsened. The group had net debt of £141.5m as at 31 Dec 2012. This has risen to what would appear to be £167m by 30 June 2013. The company’s comment that it was “... operating cash flow positive in June” appears to be obfuscation. On the whole, the company still burnt through £25.5m in six months.

I would be happy to sell AVN at anything above £1/shr. Which is what I plan on doing.

And another thing ...
Anyone highlighting that the group has a net asset value (NAV) of £253m and therefore draws the conclusion that this is what the business should be valued at as a minimum is misguided. Firstly, that NAV appears to be dwindling. Secondly, the group continues to burn through tremendous levels of cash, has a poor record of meeting sales projections, and to me appears to have a peculiar approach to qualifying its trade receivables. Finally, in the event that the business were ever to cease to be a going concern, then the debt holders would claim first dibs over the tangible assets, which make up the rump of the NAV. 

Avanti share price
Source: Bloomberg
Disclaimer: The information, discussions or topics referred to on this blog should in no way be considered “advice” to buy or sell anything. The information which may be referred to is freely available in the public domain and where required the source of information is referenced to for verification. While every effort has been made to ensure the veracity of any information contained within this blog, the author accepts no responsibility for the accuracy of any information contained within this blog or for the sources of information which may be referred to. Readers are responsible for their own actions and interpretation of the information contained within this blog. 

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