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.

Avanti results and Disney appeal

I took a brief look at Avanti's results before popping out for the day, and revenues aside, the tone of the report looked upbeat. When I came home to see the drop in the share price, I assumed that both satellites must have fallen to earth later in the day, and that they hadn't been paying the insurance premiums.

Fortunately no such event had occurred, and I took the time to read the report more thoroughly. As I said in my weekend post, this is a speculative punt with a view to the long term. Can't see any reason to change my mind. I'll continue holding, and may add a few if the price dips again. Clearly the Directors still feel confident since the tone of the report is very positive, and five of them have been topping up their holdings at around the £3 mark.

On a separate issue, Disney and Celador were back in court again today. You can see a brief report on the day by following the link below:-

http://www.hollywoodreporter.com/thr-esq/disney-urges-court-appeal-overturn-377909

It would be fantastic for the court to uphold the original verdict, but since Avesco's SP doesn't contain any premium for the possible payout, in my opinion, it's all to gain and nothing to lose.

Avesco is a growing company that will be throwing off cash to its shareholders over the next few years. I think it's undervalued without any payout. Full year figures should be good, and the noises coming out of the company are encouraging. Richard Murray has been a recent purchaser of shares on two separate occasions.

Worth noting that if the Court of Appeal does uphold the verdict then I would expect the SP to double overnight. Although, I'm unclear whether further appeals are possible.

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.