Speculate to accumulate?

Earlier this year I made what I would consider to be a highly speculative purchase of shares in a company called Avanti Communications. Avanti had been on my radar for some considerable time, but given the stage of its development in early 2011, a price of £7+ was certainly more than I was prepared to pay. The company’s shares were subsequently the target of a well-known “shorter”, and the price fell rapidly over the year to a low of around £2.40 if memory serves me correctly.

However, I kept the company on my monitor and decided to take the plunge around April 2012, buying shares at around £2.60. Since that time the shares have recovered to the current price of £3.44.

I could never classify my purchase of Avanti as an investment, more a speculative punt, but I am becoming more confident that this could be a multi-bagger in the making.

Firstly, the trigger for my purchase of Avanti shares came when in February this year they announced the fundraising for their third satellite HYLAS 3, alongside a positive trading update and a statement stating that “in the current climate (the company) does not intend to pursue further equity raisings for satellites in addition to HYLAS 3” and “Subject to suitable market conditions the Company intends to seek a premium listing on the Official List of the London Stock Exchange in 2013”.

Directors have been regular purchasers of company shares; trading updates have been encouraging and recently the launch of HYLAS 2 went smoothly. Given the costs associated with building and launching satellites and all the inherent risks, I’d imagine that barriers to entering their chosen market are high.

If things do continue to go well for Avanti then shareholders should be richly rewarded with capital growth and hopefully dividends in the longer term. However, on the flip side there are probably a thousand and one things that could still upset the applecart, hence until there are visible significant revenues, cash flow and profits it remains highly speculative. Brokers quote anything from £6-£20 a share as possible in the medium term (which probably tells you everything you need to know i.e. just pick any number out the air?).

Results will be released this Wednesday with an update on HYLAS 2, and it will be interesting to see the numbers and the capacity being filled on both HYLAS 1 and 2.

It’s not a company I’d bet the house on, but nevertheless you wouldn’t need to since if it is ultimately successful, even a fairly modest stake could quickly become more significant.