Monday, 12 May 2014

Avanti (AVN) ... gravity

Monday 12th May 2014

I shorted more Avanti, at 283p/shr, on the basis that I reckon this morning's trading statement (for Q3) was pretty poor. So I'm of the conclusion that the group may need to raise further funds within a year. Gravity may be about to kick in.  

A few points that made me add to my short. 

  • While the group reports a $2 million loss for the 9 months to 31st March 2014, it is worth bearing in mind that this likely includes the exceptional receipt of $6.5 million; reported at the interims in February. Hence, from ongoing operations, the group is still loss making by $8.5 million at the EBITDA level. 
  • The reported EBITDA level through the 9 months to 31st March 2014, suggests that the loss for the quarter may have actually risen. At the interim stage, Avanti reported $1 million in EBITDA, or negative $5.5 million when accounting for the exceptional gain. This works out at an average loss of $2.75 million per quarter. If the loss through the 9 months was $8.5 million, then this would suggest that the loss during Q3 was $3 million. I.e. the financial  performance appears to be deteriorating. 
  • The net debt figure appears to have risen from $284 million at the end of Q2 to $299 million at the end of Q3. However, this was to the period ending 31st March 2014. My understanding is that this would be one day prior to the semi-annual coupon payable on the group's bond; Bloomberg indicates that the coupon is paid semi-annually on 1st April and then 1st October. Avanti pays 10% on its $370 million bond. Hence, $18.5 million would have been paid the day after Q3 ended, so Avanti's net debt position is likely be closer to $317.5 million assuming no significant operating cash has been received.
  • On the basis of consensus capex assumption for FY 2014, of $25 million (according to Bloomberg), I reckon there is a strong possibility that further funds will need to be raised. 
  • The backlog was reported to have increased by $3 million during the quarter to $458 million. However, even on account of the fact that this was after some backlog had been taken to revenue, I still reckon the additional gain was pretty lacklustre and points towards visibility declining as opposed to increasing. 
  • Finally, I do not see that the consensus forecasts below portray any encouraging trends. 
So I increased my short.

Avanti - consensus net debt forecasts still rising
Source: Bloomberg
Avanti - consensus sales forecasts still slipping
Source: Bloomberg
Avanti - consensus EBITDA forecast still sliding
Source: Bloomberg
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