Yesterday I sold short in Avanti at 291p/shr and then again at 280p/shr this morning. Avanti appears to be one of those companies where a lot of hype over technology turns to disappointment. To highlight this I present the chart below. Since mid-2010, when its share price peaked at c. 740p/shr, consensus forecasts have fallen by 55-60% for sales in 2013-15. I suspect that when all the brokers get round to publishing new forecasts, that consensus will again be lower.
Wednesday's 19% drop in its share price would suggest that the prelims statement was a disappointment. Two items in the statement struck me as particularly odd:
- The group suggests that in the light of the company's ambition to move to the Full List "the Board has adopted an increasingly conservative accounting treatment for certain FY12 transactions, particularly relating to deferral of income over the lifetime of contracts, regardless of upfront cash flows." I reckon this is an odd statement. In adopting an
“increasingly conservative accounting treatment” I then wonder what “accounting
treatment” Avanti is leaving behind.
- My second observation concerns its penultimate note to the prelims, note 7. “Business combinations/intangible assets and goodwill.”Avanti states that on 1 November 2011 it took effective control of Filiago (careful how you say that) GmbH “by enhancing the security over its loans with Filiago.” This again seems odd. Filiago was announced as a customer of Avanti in December 2010 (see link), when it reported a five year contract with Filiago. At that time, this contract was initially valued at £1.3m. Filiago is a broadband reseller. If it is as it appears, then I am unsure why Avanti had provided loans to Filiago. Was the loan for the purchase of its services? If it is the case that this happened, then there is a phrase for that kind of activity. Further, if this did occur then I would be interested to learn if there are other customers to which Avanti has also provided loans; particularly in southern Europe.
If anyone can provide clarity on the above then I would like to hear it.
Ps. I would ignore the token Director purchases that were announced yesterday. They really are small beer when compared to the whopping director sales of c. 858k shares in 2010 at prices of 475p, 700p, and 735p/shr.
Pps. I would also ignore the broker forecasts. Cenkos is Avanti’s broker and they have previous with pie in the sky target prices. Most notably for Pursuit Dynamics (PDX) where they reckoned it to be worth 1100p/shr as compared to its current 5p/shr.
|Avanti consensus sales forecasts|
|Avanti director share purchase and sales|
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