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).

| More on:

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.

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).

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

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.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

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

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

With no cash to invest, here’s how a falling stock market could still help me to get rich

Stephen Wright explains why falling share prices might be good news even for an investor with no cash on the…

Read more »

Business people shaking hands
Investing Articles

Director dealings: Lloyds, IAG, SSE

Director dealings can indicate whether a company's doing well. So, here are this week's director dealings from three of the…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

Why Kingfisher’s DIY empire could mean it’s a recession-proof stock

Kingfisher’s stock has been pummelled in recent months, but historically DIY stores have done well during recessions.

Read more »

Burst your bubble thumbtack and balloon background
Investing Articles

4 recession stocks that I’d buy to protect myself

Jon Smith talks through some of the recession stocks he has on his watchlist, ready to go if the economy…

Read more »

Happy diverse people together in the park
Investing Articles

My Stocks and Shares ISA is in the red… and I’m still smiling

Having not invested through a downturn before, this is the first time I've seen my Stocks and Shares ISA showing…

Read more »

University graduate student diploma piggy bank
Investing Articles

Should I be concerned about the windfall tax for my BP shares?

What does the new UK windfall tax mean for the BP share price? Michelle Freeman digs into the details to…

Read more »

Buffett at the BRK AGM
Investing Articles

What Warren Buffett’s wisdom and investing in stocks will teach you about life

Investing is a journey of self-discovery. So what will stocks and the words of legendary investor Warren Buffett teach you…

Read more »

Smiling senior white man talking through telephone while using laptop at desk.
Investing Articles

5 ‘no-brainer’ income stocks to buy today!

Amid soaring inflation, I'm looking at these income stocks, offering big yields, to grow my portfolio.

Read more »