Avanti Communications interims

It's been some time since I've commented on my holding in Avanti Communications, the satellite operator, which has been somewhat of a volatile performer in my portfolio to date. Given that this is a speculative holding in a company that is still to make a profit, the share price performance holds no surprises, and I'm happy to sit tight.

The interims look encouraging to me, and whilst I have no illusions about the risks involved with these type of investments, if they are eventually successful then the nature of the business suggests that the market cap. will substantially increase from current levels, and Avanti should become a handsome dividend payer.

Revenues for the year were up an impressive 81%, and they attained 40 new contracts in the period with sales momentum continuing with high quality global telco and media customers.

The outlook statement is very encouraging:-

"The second half started positively with the award of a large African government contract. We won several million dollars of broadband business in Western Europe from competitors based on quality of service advantages. Our cellular backhaul product gained new pilot projects in Africa last month, and our SNG product is currently used in high profile events like Sochi. We continue to sell to new large and expert customers and backlog is growing. Our business growth will remain difficult to forecast, but the growth in the size and quality of the customer base and a satisfying repeat order rate gives us firm belief that we are building a profitable and enduring business."

Cash flow, as would be expected, is rapidly improving and cash on the balance sheet is $78.3m. In September the company entered the debt capital markets with their first $370m bond issue placed on competitive terms to re-finance and extend maturities which David Williams, Chief Executive Officer, said:

"diversifies and increases the sources of funding available to the Company. The greater flexibility which the Notes provide will allow us to utilise our balance sheet more effectively and to respond to new opportunities. The Notes have no financial ratio covenant tests and greatly enhance our cashflow."

Bizarrely, it appears that the usual suspects are still trying to short Avanti's shares. Albeit with little success for the time being.

I say bizarrely for the following reasons. 

Whilst nobody should pretend that this is anything but a highly speculative investment, it does appear that sales momentum is beginning to gather considerable pace. They are winning business from competitors based on the quality of their service, and they are picking up high quality global Telco and media customers. With the acquisition of the Artemis satellite they now have valuable Ka band (and some Ku and S band) spectrum filings in the ITU Master Register at 33.5degW, 21.5deg East and 31.0deg East.

It's no mean feat to build and launch two satellites successfully with full operational capability, and whilst risk still remains, my guess is that at worst the company will be an acquisition target.

Anyway, time will tell, and as ever no advice is intended or given.