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.

Updates on Belgravium Technologies, Angle and Trakm8

Belgravium Technologies, a company I have mentioned before (see below),

http://michae1mouse.blogspot.co.uk/2013/08/13-rise-for-belgravium-technologies.html

released their trading statement for the full year on Friday, and stated the following:-

"The board of Belgravium Technologies plc is pleased to announce that as anticipated it's trading performance for the second half of the year ended 31 December 2013 has been stronger than the first half and that as a consequence the Directors expect the result for the year, before exceptional costs, to be broadly in line with expectations. Exceptional costs have been incurred principally in relation to the acquisition costs of Feedback Data earlier in the year and in respect of further restructuring undertaken within Feedback and other parts of the group, which the board is confident will bring benefits in 2014.
The results for the year ended 31 December 2013 are expected to be announced on 5 March 2013."

As a long term holder, I'm quite happy with the progress they are making. Certainly the statement held no nasty surprises, and since this is a company committed to paying dividends and which is looking forward to further progress in 2014, I shall continue to hold.

The full year results and outlook statement in early March will make for interesting reading, but with broker forecasts of £9m revenues, 0.35p EPS and 0.1p dividend for this year and just over £10m in revenues next year, 0.6p EPS and a 0.2p dividend, the shares still look cheap. The 2013 P/E ratio will be around 14 dropping to 8.5 in 2014, whilst the dividend yield is predicted to be around 2% this year, jumping to 4% in 2014.

Angle Plc also released their interim results last week. These also held few surprises, but as commented previously they do appear to be making excellent progress with a diagnostic device that could make a major contribution in the fight against various types of cancer, although this is not the only area in which the device has potential applications. From an investment point of view the target market is worth billions, and if Angle are successful then the rewards could be very substantial indeed.

However, this is undoubtedly still a very speculative investment since there is much work to be done before they see meaningful revenues.

The task they face shouldn't be underestimated either. This paragraph from the interims:-

"ANGLE is working to establish the use of Parsortix in clinical practice through identifying key clinical applications with medical utility, securing clinical data that demonstrates the medical utility of those applications in patient trials and obtaining key opinion leader support for the adoption of Parsortix in the routine medical care of cancer patients",

tells us that getting the product to market is quite some task because this not just a case of selling an excellent product into established markets, they've pretty much got to create the market in the first instance.

In the interims it also states that:-  "As we establish each clinical application supported by proven clinical data and key opinion leaders, we would expect sustained revenue growth for that application. We intend to amplify this growth by developing key relationships with major medtech companies and pharmaceutical companies over the same timeframe. We intend to amplify this growth by developing key relationships with major medtech companies and pharmaceutical companies over the same timeframe."

My suspicion is that if this device is as successful as it appears to be then a major medtech company will probably be far more interested in buying Angle lock, stock and barrel rather than some sort of partnership. We shall see. Overall, I am very encouraged by progress here and I would look to buy more shares on any share price weakness.

Finally, Trakm8 released what at first glance looked like a fairly innocuous RNS headed "Grant of Options and sale of treasury shares". It was the sale of treasury shares that caught the eye. Basically, an employee has bought 220,000 shares out of treasury at 46.25p per share i.e. £101,750 worth. Not a bad vote of confidence. Mind you if you bear in mind that Trakm8 is achieving very good growth in an attractive and expanding market, having scaled up with the acquisition of BOX telematics, the current £15m market capitalisation looks very cheap when compared against any number of similar small cap. listed companies.

As ever no advice intended or given, and I am a shareholder in each of the companies mentioned above. Please do your own research.

MS international and Hydro International

Two further companies from the value portfolio.

Firstly, MS international which is already up by 12% since I included it in my January 5th blog.

On first glance this is a company that appears to have been hit by difficult trading conditions in the Defence sector, and a move from the main market to AIM which can cause institutional investors to become forced sellers of the stock.

After a cursory look, the financials do look attractive, and this could prove to be a good recovery stock. At the current share price of 195p, the company is backed by 143p of tangible assets and pays a dividend yield of 4.1%. The current p/e ratio is around 8, and since 1998 they have clearly implemented a progressive dividend policy.

Whilst earnings for the current year will be below expectations, encouragingly they have maintained the interim dividend and the longer term prospects appear quite positive:-

"the structure of the 'Defence' division's order book provides a solid base load of business stretching out to the end of the decade. This means that, despite any current market slackness, the division not only has contracts to be completed within the current year, but also has the positive benefit of a continuous stream of business, scheduled by customers for delivery in each successive year through to 2020."

A recent purchase of the shares by the Finance Director (around £20,000) may give rise to further confidence.

Hydro International (AIM: HYD) describes itself as a leading provider of environmentally sustainable and innovative products for the control and treatment of water.

Dealing with the financials first; it has a market cap. of £16m, a yield of 3.2% and a historic p/e ratio (based on last year's figures) of 9. The net tangible asset value is 50p. Again the dividend policy has been progressive.

Although the interim results were slightly ahead of last years with revenues up 6%, the company states :- "Our view remains, therefore, that both revenue and profitability in 2013 will be materially lower than 2012 levels, and that results for the year will again be weighted significantly to the second half-year." Hence the currently low p/e. As far as I can see there is no indication of their intention on the dividend policy this year.

In November the new Chief Executive announced a Global Leadership Team to drive forward growth. The shares have remained fairly static since earlier in the month.

As ever, no advice intended or given