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
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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