Back in profit after Avanti releases encouraging interims

Regular readers of my blog will remember that I bought shares in a company called Avanti Communications back in April 2012 for about £2.60 per share:-

http://michae1mouse.blogspot.co.uk/2012/10/speculate-to-accumulate.html

The share price subsequently rose towards £4, but following a concerted bear raid after releasing their final results the shares fell back below my purchase price. I didn't pick any more up, but I did retain my holding.

http://michae1mouse.blogspot.co.uk/2012/10/a-bear-raid-on-avanti.html

Quite frankly I have always considered this to be a high risk stock that could be prone to wild gyrations in it's share price until it starts to generate cash.

On Tuesday of this week, Avanti released their interim results and, touch wood, I 'm glad I've held on because I'm now back in profit and cautiously optimistic that my speculation could bring rich rewards.

In summary, the interims were very positive not least because they reported that they expect to be cash flow positive in the second half of this year. If indeed they do deliver on this promise then the bears will be running for the hills.

In the outlook statement they state that:-

"Sales momentum for HYLAS 1 and 2 continues to build very well with a Backlog of firm committed orders of GBP290 million giving us confidence that we will sell out our satellites in the timescales contemplated."

They also state:- "Sales momentum continues to build very well. We operate in rapidly developing markets in Africa and the Middle East which are showing very strong demand for our market-beating services, with several HYLAS 2 beams already fully sold."

So very positive all round. Furthermore, Avanti hope to list on the Main Exchange this year and Paul Johnson, a new non-executive director has just purchased £27,700 worth of shares.

It appears the scales have tipped in shareholders favour for now, but it always pays to be cautious with speculative investments like these where fortunes can turn on a sixpence.

I shall continue to hold whilst recognising the inherent risks.

For interest this weeks FT Weekend commented on Avanti as follows:-

"Satellite operator Avanti Communications was up 27.8 per cent after saying it expected to turn operating cash flow positive in the second half of the year. Management said it had invoiced all customers for a new satellite in January and added that contracts in the pipeline should be enough to meet its targets."

Densitron disappoints

Densitron issued a trading statement this week which greatly disappointed and took me by surprise. In early November the company had already issued a profits warning which indicated that they wouldn't meet market expectations. However, at the same time they said operating profit would be above that achieved in 2011.

The latest trading update now states that profit will be materially lower than 2011. Given that the previous statement was issued just two months before the year end, it doesn't instill any confidence in their ability to accurately forecast future trading.

The poor update was compounded by the reluctance of the parties involved in litigation against Densitron to enter mediation regarding a lease property at Wallsend, Tyne and Wear.

The share price nosed dived 20% on the news, but later recovered to end the day around 16% down.

The reason I was so surprised was that in recent days, volumes had been increasing and the share price steadily moving upwards. Rightly or wrongly I expected that news had possibly leaked that trading had picked up and a resolution to the lease litigation had been settled out of court. Given the lowly rating (a low single digit p/e ratio) that would have made the shares very attractive and the share price would no doubt have jumped a similar amount in the opposite direction (if not substantially more). However, if my aunt was my uncle as they say. Such are the vagaries of stock market investment from time to time.

Since I acquired shares in Densitron they have paid good dividends, and I hope these can be sustained despite the profit warning. They have a strong balance sheet with little debt. The p/e ratio is currently around 7, based on 2011 results, although clearly set to rise. They also own a 1.25 acre strip of land in Blackheath where they are seeking planning permission.

At the current share price, I would hope that there is little further downside, and that 2013 may bring better news. I'm also still a little intrigued with the sudden volume increase in recent weeks which moved the share price upwards, although this may amount to nothing. On balance I've decided to hold on to my shares and await developments during 2013 whilst (hopefully) receiving a healthy dividend payout.

Only time will tell whether or not this is a wise move.

 

Interesting development??

I see Taya Communications have invested another £277,890 in Avesco at £1.57 per share. Ami Giniger, a non-executive director of  Avesco, is the chairman and controlling shareholder of Taya. That brings their stake up to 29.99% the maximum amount they can hold before making a formal bid for the company (pedants might argue that they could add a further 0.00999 recurring percentage worth).

Taya had a bid for the company rejected when the share price was bouncing up and down in the 20p-30p range in 2009. The derisory offer at the time was in the range 28p-35p and summarily dismissed. It wasn't a difficult decision given that NTAV even at that time was north of £1.40.

The recent purchase seems interesting to me given my article "something on my mind" http://michae1mouse.blogspot.co.uk/2013/01/something-on-my-mind.html.  If Avesco eventually receive their $60m from Disney and they distribute most of it to shareholders (as they have already indicated) then nearly a third will be pocketed by Taya. What will they do with that money? Will they come back with another bid for Avesco?

One thing is for sure, it would have to be a high multiple of their original offer. I firmly believe that Avesco is still priced well below fair value even without a payout from Disney. NTAV is £1.52, the company is profitable and growing and has an excellent reputation in its field. See link below for two recent awards received by Creative Technology:-

http://www.ct-group.com/news/ct-awarded-gold-twice-two-weeks

Avesco has done exceptionally well to grow organically into the teeth of a considerable economic storm. As economic conditions improve this company can only continue to prosper.  Any prospective bidder would need to make a very generous offer indeed!!