Avanti Communications Group PLC: A ‘Story’ Stock Gone Sour

G A Chester casts a sceptical eye over bulletin-board favourite Avanti Communications Group PLC (LON:AVN).

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

Avanti Communications (LSE: AVN) has the usual characteristics displayed by the hottest of AIM stocks: a great ‘story’, the potential for lottery-like winnings, and a large herd of excited private investors posting on financial bulletin boards.

The Avanti Communications story

Avanti Communications joined AIM in April 2007, having been demerged from Avanti Screenmedia (which later collapsed). Avanti Communications came to market as a provider of satellite telecommunications services in Europe using leased satellite capacity, but had plans to launch its own satellite (HYLAS 1).

HYLAS 1 was launched in November 2010. HYLAS 2 was launched in August 2012, extending Avanti’s coverage to Africa, Caucasia and the Middle East. HYLAS 3 and 4 are in the pipeline.

Avanti posted revenue growth of 104% to $66m for the year ended June 2014 — a third successive year of mammoth growth — and management reckons the business can potentially generate over $700m in revenues annually if capacity of the current fleet of satellites is filled.

A story stock gone sour

Avanti’s shares closed at 243p on the first day of trading on AIM, and reached 728p in the weeks following the launch of HYLAS 1. However, despite the soaring revenues, the shares have since been on an erratic downward trajectory, and the price is 230p at the time of writing.

While revenue growth may seem impressive at first sight, brokers have persistently made downward revisions from more stupendous forecasts. Projections have fared even worse at the level of profit — or, loss, to be precise; the company has yet to turn a profit.

Commissioning the building and launch of satellites doesn’t come cheap, and Avanti continues to burn cash like a rocket burning liquid oxygen. The number of shares in issue has increased more than fourfold since the company listed, the last big jump coming as a result of a £75m equity placing to fund HYLAS 3 in 2012.

Furthermore, Avanti has issued high-yield bonds: $370m worth in 2013 to refinance existing borrowings, and $150m in 2014 to commence HYLAS 4. The company is now wallowing in debt. At the last year end (30 June) there was $195m in cash on the balance sheet, but $517m of gross debt.

A history of downgraded profit projections, rising debt and the need for further equity and/or bond fundraisings (on likely increasingly unattractive terms) have made Avanti a progressively less sweet jam-tomorrow stock for many investors.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

G A Chester has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

These FTSE 100 stocks are making a joke of the S&P 500 — but I’m eyeing more ‘rational’ options

Many FTSE 100 stocks are soaring ahead of their S&P 500 rivals in 2025 but Mark Hartley’s looking for some…

Read more »

Santa Clara offices of NVIDIA
Investing Articles

The Nvidia share price hit an all-time high this week. But could it still be a bargain?

The Nvidia share price has soared 1,466% in just five years. This writer reckons the best may yet be to…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

How much does someone need to invest to target a second income of £15k – or £150k?

A second income from dividend shares? It's a well-worn path -- and this writer sees some attractions to the approach.…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

Could the stock market crash in the second half of 2025?

As the FTSE 100 hits a new high, could a stock market crash be coming? Our writer thinks there's a…

Read more »

Man hanging in the balance over a log at seaside in Scotland
Investing Articles

Start investing this summer with a spare £250? Here’s how!

Christopher Ruane explains how an investor with a few hundred pounds to spare and no prior experience could look to…

Read more »

Young female analyst working at her desk in the office
Investing Articles

Is Palantir stock the new Nvidia? Why UK investors should (or shouldn’t) care

Palantir stock’s the top performer on the S&P 500 this year. Should UK investors consider it amid a blistering AI-fuelled…

Read more »

Investing Articles

3 FTSE 100 shares I think look undervalued

The FTSE 100 may be hitting record highs but there are still bargains to be had on the index. I…

Read more »

Close-up image depicting a woman in her 70s taking British bank notes from her colourful leather wallet.
Investing Articles

£20,000 in savings? Here’s how to target £841 of passive income each month

Passive income plans don't need to be complicated. Our writer explains how someone could target a sizeable second income buying…

Read more »