Meltdown at Avanti

Avanti Communications has had an extremely bad week. The satellite operator, which once foolishly promised that it had enough capacity to supply much of Europe with its HDTV transmissions, is discovering that selling satellite capacity is a tough task. The world, it seemed didn’t want its Ka-band capacity located at 33.5 degrees West, especially for HDTV. That wouldn’t be so bad, particularly if the world was beating a path to Avanti’s door and buying up its capacity for broadband, or satellite backhaul, or occasional use.

Two years ago CEO David Williams talked about having “at least half a dozen satellites”.

But according to its latest financials (for the financial year to June 30th), Avanti declared numbers which it coyly admitted were “below expectations”. The company informed the market that certain contracts had failed to materialise and could now be completed in the current new financial year.  But this was a report that wasn’t just a few deals short of a business, but well below estimates. And to add more worries, one particular contract signed last year is no longer assured.

Avanti delivered its backlog numbers, that is the future guaranteed business that was firmly contracted, as: “£42 million ($62.58m) for 2014, £46 million ($68.54m) for 2015, £40 million ($59.60m) for 2016.   These numbers superficially look good, but drill down and they are significantly lower than previous expectations when Avanti gave guidance of achieving £11 million per month.

Avanti claims it is set for a busy 12 months. “[Over the next year], a new contract will be added. Secondly, three large contracts are currently under negotiation. Thirdly, contract renewals will be signed and some contracts may be extended. In the end, Avanti therefore reiterates its ambition to reach £610 million in sales as soon as June 2014.”

But the market saw through these phrases, and did not mush appreciate words such as “ambition”.  On June 10th its share price fell 41.2 per cent, possibly a record on London’s Alternative Investment Market.  The previous day’s fall was another thumping 23 per cent. Two years ago Avanti’s share price was trading optimistically at almost £8 a share. June 10th saw the company hit £1.45 a share.

The company is heavily in debt (about £500 million) and now has a market capitalisation of a mere £162 million. It doesn’t look good.

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