|
Avanti Communications |
|
HYLAS 4 signals a boost to financials |
|
Second interim results |
|
Aerospace & defence |
|
1 October 2018 |
Share price performance
Business description
Next events
Analysts
Avanti Communications is a research client of Edison Investment Research Limited |
|||||||||||||||||||||||||||||||||||||||||||||||
Avanti made good progress in the second six months of the current extended financial period. In addition, HYLAS 4 became commercially operational this month and there have been significant contract awards since launch, encouraging the belief that it should improve the financial outlook. The last reporting period reflected some uncertainty around the financial restructuring; however, this has been completed successfully. Avanti also received $20m cash from the Indonesian arbitration settlement in August. We await guidance for FY19 trading, including possible modest financing needs, before restoring forecasts.
|
Year end |
Revenue ($m) |
PBT* ($m) |
EPS* (c) |
DPS (c) |
P/E (x) |
Yield (%) |
|
06/15 |
85.2 |
(73.3) |
(61.4) |
0.0 |
N/A |
N/A |
|
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.
Avanti has released results for the second interim period of the current 18-month financial period ending 31 December 2018. Sales were up 23% in the six months to 30 June at $29.9m (6M to June 2017: $24.3m) and reported EBITDA was $4.7m (6M to June 2017: loss $26.2m) after the release of the $12.5m bad debt provision for the now settled Government of Indonesia arbitration. Adjusted EBITDA loss was significantly improved at $7.8m (6M to June 2017 loss: $12.3m) after reversing out the accounting treatment of the dispute from both periods. Gross cash at the end of June stood at $11.0m before receipt of the $20.1m cash settlement post the period end. Unaudited 12-month results met company guidance for the period, with sales declining 11.7% to $50.0m (FY17: $56.6m). Adjusted EBITDA for the 12-month period was almost unchanged at $19.3m (FY17: $19.0m).
HYLAS 4 has been positioned at 33.50W and entered into commercial operation in September. Avanti has signed significant contracts with Comsat and Viasat since 30 June 2018, as well as a seven-year wholesale capacity agreement worth $84m. These contracts progress the revised strategy, which includes engaging with other operators, and significantly develop the governmental market. We feel this reflects the rehabilitation of Avanti following the financial restructuring under the new management team led by CEO Kyle Whitehill (joined 3 April 2018). Management indicates that while the future looks brighter, modest additional funding sources are likely to be required over the next 18 months. Cash flow and profits should start to improve as HYLAS 4 grows revenues across the relatively fixed cost base.
The successful debt for equity swap and HYLAS 4 provide potential for equity upside, albeit heavily diluted. FY19 should indicate how rapidly cash generation can improve and what value to attribute to the $1.2bn network investment.
The key highlights of the six months to 30 June 2018 were as follows:
■
Revenues rose 23.3% to $29.9m (H217: $24.3m).
■
Reported EBITDA of $4.7m (H217 EBITDA loss: $26.2m).
■
Adjusted EBITDA loss of $7.8m (H217 EBITDA loss: $12.3m) following settlement of the Government of Indonesia arbitration in Avanti’s favour, leading to a $12.5m reversal of a bad debt provision.
■
Period-end gross cash of $11.0m (H217: $32.7m). $20.1m was subsequently received on 13 August 2018 from the arbitration settlement.
■
Net debt of $398.1m following completion of the financial restructuring.
At the end of June 2018 the order backlog stood at $87m (FY17: $104m), reflecting the commercial inertia during the refinancing uncertainty. Since the period end, and following the successful launch and entry into commercial operation of HYLAS 4, this subsequently increased to $165m on 24 September 2018. Avanti has also established a strategic presence in Washington to focus on selling Mil-Ka capacity. The improvement in order backlog reflects recent contract wins including:
■
A unique seven-year Master Distribution Agreement with Comsat across Avanti’s satellite fleet, allowing a leader in satellite connectivity to the US DoD to offer advanced complete service packages to its customers focused on the Middle East and Africa.
■
A capacity lease contract worth $10m with global communications company Viasat for global government applications, providing access to HYLAS 4’s steerable Ka-band beams.
■
A wholesale capacity lease deal received earlier this week with a major international satellite service provider. The deal is worth $84m over its term and Avanti will receive $12m per annum.
During Q318, the company obtained a commitment for a new $34.5m debt facility, which is expected to close before the end of October 2018. The report makes it clear that Avanti may require modest additional funding over the next 18 months, which could include additional second lien debt or equity finance. In our view, HYLAS 3 could be a significant source of additional finance.
As a reminder, the financial restructuring reduced the interest burden on existing debt lines substantially by $92.1m, to $36.6m.
Exhibit 1: Positive impact of Avanti Communications debt restructuring
|
$m |
Super senior facility |
2021 notes |
2023 notes |
Total |
|
Pre-restructuring debt |
100.0 |
323.3 |
557.0 |
980.3 |
|
Debt for equity |
(557.0) |
(557.0) |
||
|
Post-restructuring debt |
100.0 |
323.3 |
0.0 |
423.3 |
|
Previous cash interest rate |
7.5% |
12.5% |
14.5% |
|
|
New cash interest rate |
7.5% |
9.0% |
- |
|
|
Previous cash annual interest |
7.5 |
40.4 |
80.8 |
128.7 |
|
New cash annual interest |
7.5 |
29.1 |
- |
36.6 |
Source: Avanti Communications
The high levels of network capital investment should complete in 2019, and coincide with improving operational cash flow as capacity fills, especially on HYLAS 4. Assuming the ongoing financing programme is achieved, it is the progress of the operational performance of the network that will determine the equity fair value.
Exhibit 2: 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 accounts, Edison Investment Research
|
|