High barriers to entry.........and gaining traction?

Another company that I hold a modest stake in is Avanti Communications. This morning they released their full year results that were in-line with market expectations. Revenues were up 30% to $85.2m  with a recorded loss of $73.1m. EBITDA (before share based payment charges) increased to $16.0m from $1.7m in 2014.

Avanti is a speculative investment, but I am pleased that the company does appear to be gaining traction and I am encouraged with the progress that is now being made.

In the past Avanti has been a popular target for short sellers, chiefly because of the company's significant debt pile and slower than hoped for progress.

However, I have maintained my modest holding in the company throughout the oscillations in it's share price in the hope that Avanti will eventually reach it's full potential. As they state in today's report, "We have now invested over $1.2bn in developing a business that can meet the huge latent demand for affordable connectivity in high growth markets. Together with the investments that we will make over the next two years, this will create a company with the potential to generate over $500m of EBITDA once the fleet is filled." Clearly if this can be achieved then with the company currently valued at £300m, the shares have multi-bagger potential.

A big factor in my holding the shares for the long term is neatly summed up in the following two paragraphs of today's report:-

"The satellite industry has very high barriers to entry. These include the intellectual capital that is needed to design and run a satellite network and the requirement for orbital slots and spectrum.

 

The risks to Avanti's business model through technological change are low, primarily due to the very long lead times needed to develop and launch new satellite technologies."

 

If you couple the above with the following:-

 

 "Avanti is no longer regarded as a new entrant. We are delivering excellent service for our customers using superior technology, today. Our technology platform is proven across our markets and our brand is understood and well regarded."

 

then it's possible to envisage that the company is on the way to reaching a tipping point in uptake for their services.

 

Risks remain of course, but having come this far and with a recent significant backer in MAST Capital Management, LLC, a Boston-based investment firm, I remain cautiously optimistic and shall continue to hold.