A bear raid on Avanti

I've always thought that shorting shares (for PIs) is a very risky practice, particularly since it involves spreadbetting (from my understanding) where gains and losses can be very substantial indeed.

However, it hasn't stopped one well-known bear raider, and a few others from shorting Avanti shares following their recent results. Their arguments can be read on the Avanti thread on ADVFN.

As I have already stated in two previous posts, Avanti is a speculative punt for me, but I continue to hold and may add on any further price weakness.

Whilst revenues were well below the level that they had indicated only a month or so earlier, I'm prepared to take their explanation at face value where they say that they have decided to adopt a more conservative approach to aspects of their accounting in preparation for their listing on the main exchange.

Herein probably lies a conundrum for the shorters. They have centred their arguments around Avanti's accounts, and inferred a lack of transparency. However, I'd question why the company would expose itself to the more rigorous scrutiny of the main exchange, if they were trying to keep their accounting practices under wraps. Surely they would have just stuck with AIM and reported the £17.5m in revenues? Furthermore, seven Directors have just picked up another £166,000 worth of shares between them to add to their existing holdings. Either all seven are insane and happy to throw good money after bad or they believe in the future of the company.

With all speculative companies, one of my main worries would be cash and the possibilty that they burn through it too quickly and have to tap shareholders for extra funds. However, Avanti seem to have enough for the forseeable future, and I am reassured by the following statement:-

"The Company also continues to evaluate options for additional satellites, but only if they can be prudently debt financed without recourse to shareholders".

Which clearly suggests they wish to preserve shareholder value.

Futhermore, the bears have conveniently ignored the very positive steps forward that Avanti have made and are achieving. Two fully operational satellites and a further fully financed satellite currently being built. Capacity on the satellites is selling well and on target (£11m per month).

It's also worth noting that the current market value of the company is not substantially above its tangible NAV.

For now I'll assume that Avanti's biggest mistake was not informing investors beforehand of the change in accounting practice. That said, if they had released this news without the positive news about progress, then the shares would probably have fallen further, so in retrospect it was probably the right move to wait.

As I've already said, I wouldn't bet the house on Avanti, but I am still optimistic that over the next few years the company could generate an excellent return.

Good luck to the shorters if they can make some money from a very risky approach, but I'll stick with my long game and avoid all the unnecessary stress. Touch wood it's served me well so far.