Avanti Communications Group — Final positioning for commercial relaunch

Avanti Communications Group — Final positioning for commercial relaunch

Avanti had a busy Q3 ahead of its April conversion to equity of its 2023 notes. Following the $20.1m settlement due from the government of Indonesia at the end of July, it expects to complete further lines of funding to complement the restructuring. Meanwhile, the successful launch of HYLAS 4 just after the Q3 end maintains the schedule to bring the satellite into operational service towards the end of July 2018, thus significantly increasing the capacity of the fleet. The removal of financial constraint should support the company as it refines and implements its new strategy.

Andy Chambers

Written by

Andy Chambers

Director, Industrials

Avanti Communications

Final positioning for commercial relaunch

Indonesian arbitration award & HYLAS 4 contract win

Fixed satellite services

25 June 2018

Price

5.00p

Market cap

£108m

US$1.33/£1

Net debt ($m) at 31 March 2018

774

Shares in issue

2,163m

Free float

100%

Code

AVN

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(14.6)

(60.0)

(50.8)

Rel (local)

(11.6)

(62.6)

(51.9)

52-week high/low

13.5p

4.8p

Business description

Avanti Communications is a London-based, fixed satellite services provider. It sells satellite data communications services to service providers in its key markets of enterprise, broadband, carrier services and government. It has Ka-band capacity on four satellites.

Next events

Year end FY18

December 2018

Analysts

Andy Chambers

+44 (0)20 3077 5700

Annabel Hewson

+44 (0)20 3077 5700

Avanti Communications is a research client of Edison Investment Research Limited

Avanti had a busy Q3 ahead of its April conversion to equity of its 2023 notes. Following the $20.1m settlement due from the government of Indonesia at the end of July, it expects to complete further lines of funding to complement the restructuring. Meanwhile, the successful launch of HYLAS 4 just after the Q3 end maintains the schedule to bring the satellite into operational service towards the end of July 2018, thus significantly increasing the capacity of the fleet. The removal of financial constraint should support the company as it refines and implements its new strategy.

Year end

Revenue ($m)

PBT*
($m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

06/15

85.2

(73.3)

(61.4)

0.0

N/A

NA

06/16

82.8

(67.0)

(49.3)

0.0

N/A

N/A

06/17

56.6

(172.9)

(104.5)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Busy Q3, but trading remains tough

Avanti reported revenue of $31.3m in the nine months to 31 March 2018 (9M17: $45.9m). Last year’s revenue included $8.5m of revenue from Artemis, which is now retired. Excluding this, the main reason for the drop in revenues was lower equipment sales as a result of the financial uncertainty, which should now reverse. Cost of sales and overheads were in line with company expectations at $55.7m (9M17: $58.3m). Net debt was $774m at the end of Q318, before the debt to equity swap reduced this by $557m on 26 April 2018. Allowing for a $3m FX gain, the order backlog was broadly unchanged, rising from $84.1m to $87.9m, with no further provisions against backlog in the period. Avanti is to align its reporting calendar with other key businesses in the industry, and will move the year end from June to December this year. Management change at the company brought Kyle Whitehill as new CEO on 3 April, and Christopher McLaughlin appointed chief of corporate affairs, stepping down from his non-executive director board position.

Operationally on track

The successful launch of HYLAS 4 on 4 April 2018 has been followed by the completion of the first phase of in-orbit testing. The schedule is to move the satellite from its current position at 21.5E to the operational slot of 33.5W and bring it into operational service towards the end of July 2018, thus significantly increasing the fleet capacity to 47GHz. Today’s $10m contract for Viasat is the first for HYLAS 4 under the new CEO and is a clear indication Avanti is back in business. As already disclosed, all options are being considered to maximise value from HYLAS 3.

Valuation: A year of transition continues

The new CEO is likely to address strategic and commercial issues in due course. We note the benefits of the financial restructuring and the change of the year end, although for now we are not reintroducing forecasts. However, we remain encouraged that a revised equity story is in place, with the model basically unchanged and the launch of HYLAS 4 a potential major game changer.

Exhibit 1: Financial summary

$m

2015

2016

2017

Year end 30 June

IFRS

IFRS

IFRS

PROFIT & LOSS

 

Revenue

 

 

85.2

82.8

56.6

Cost of Sales

(83.8)

(86.0)

(104.7)

Gross Profit

1.4

(3.2)

(48.1)

EBITDA

 

 

12.5

4.6

(34.5)

Operating Profit (before amort. and except.)

 

 

(32.6)

(39.8)

(78.5)

Intangible Amortisation

(0.2)

(0.2)

(1.2)

Exceptionals

0.0

0.0

95.2

Other

0.0

0.0

0.0

Operating Profit

(32.8)

(40.0)

15.5

Net Interest

(40.5)

(27.0)

(93.2)

Profit Before Tax (norm)

 

 

(73.3)

(67.0)

(172.9)

Profit Before Tax (FRS 3)

 

 

(73.3)

(67.0)

(77.7)

Tax

0.0

(2.2)

12.0

Profit After Tax (norm)

(73.3)

(69.2)

(160.9)

Profit After Tax (FRS 3)

(73.3)

(69.2)

(65.7)

Average Number of Shares Outstanding (m)

119.0

139.4

153.5

EPS - normalised (c)

 

 

(61.4)

(49.3)

(104.5)

EPS - normalised fully diluted (c)

 

 

(61.4)

(49.3)

(104.5)

EPS - (IFRS) (c)

 

 

(61.4)

(49.3)

(42.5)

Dividend per share (c)

0.0

0.0

0.0

Gross Margin (%)

1.6

-3.9

-85.0

EBITDA Margin (%)

14.7

5.6

-61.0

Operating Margin (before GW and except.) (%)

-38.2

-48.1

-138.7

BALANCE SHEET

Fixed Assets

 

 

721.5

804.5

711.9

Intangible Assets

11.0

10.8

9.3

Tangible Assets

691.0

775.1

671.8

Investments

19.5

18.6

30.8

Current Assets

 

 

160.3

137.8

95.9

Stocks

2.6

1.9

2.6

Debtors

17.8

39.3

22.8

Cash

122.2

56.4

32.7

Other

17.7

40.2

37.8

Current Liabilities

 

 

(36.6)

(86.1)

(72.4)

Creditors

(31.9)

(82.8)

(70.3)

Short term borrowings

(4.7)

(3.3)

(2.1)

Long Term Liabilities

 

 

(540.5)

(654.7)

(601.7)

Long term borrowings

(523.7)

(642.0)

(592.6)

Other long term liabilities

(16.8)

(12.7)

(9.1)

Net Assets

 

 

304.7

201.5

133.7

CASH FLOW

Operating Cash Flow

 

 

(8.1)

(22.7)

136.5

Net Interest

(54.4)

(67.4)

(156.1)

Tax

0.0

(2.2)

12.0

Capex

(102.0)

(95.7)

(66.5)

Acquisitions/disposals

0.0

0.0

0.0

Financing

80.0

5.3

101.0

Dividends

0.0

0.0

0.0

Net Cash Flow

(84.5)

(182.7)

26.9

Opening net debt/(cash)

 

 

321.7

406.2

588.9

HP finance leases initiated

0.0

0.0

0.0

Other

0.0

0.0

(0.0)

Closing net debt/(cash)

 

 

406.2

588.9

562.0

Source: Company data, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Avanti Communications and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
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New York +1 646 653 7026

295 Madison Avenue, 18th Floor

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US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

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NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Avanti Communications and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Trifast — Project Atlas helps map the future

Trifast delivered another record financial performance. FY18 results were modestly ahead of market expectations, but significantly ahead of expectations at the start of the year. Management is now launching Project Atlas to integrate its management, customer-facing and manufacturing processes through a £15m investment over the next three years. By maintaining leading customer service and quality levels, the move is a clear support for the invest and grow strategy. Following the recent acquisition of Precision Technology Supplies (PTS) in the UK, the company retains adequate resources to pursue additional M&A should appropriate opportunities arise.

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