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Today’s Winner And Loser: Avanti Communications Group PLC Jumps As Premier Farnell plc Slumps

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Electronics group Premier Farnell (LSE: PFL) is sliding today after the company issued a profit warning.

Specifically, the company reported that full-year operating profit was expected to be in the region of £86m to £88m, compared to the figure of £93m reported last year. In fact, this marks the third consecutive year of falling profits for the group.

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Still, Premier announced today that positive momentum in sales growth has been delivered through second half. Group sales were 4% higher during the fourth quarter. Full-year sales are expected to expand by 3.3%.

However, Premier is still looking to streamline its operations and cut out costs. Management has increased its annualised cost saving target to £10m-£12m, compared to the previous target of £6m-£8m. Exceptional costs associated with these cost savings will amount to £5m this year and an additional £5m during 2015/16.

All in all, it appears that Premier is struggling. While the company’s sales are expanding, profit continues to slide as margins come under pressure.

Indeed, the group warned today that lower-margin products were driving sales growth, which does not bode well for long-term growth. And if the company can’t push margins higher and drive net income growth, investors will suffer. Premier’s dividend payout is likely to come under pressure.

For example, Premiers dividend payout was only covered one-and-a-half times by earnings per share last year, and the payout cover will fall this year. Even though Premier currently yields 6.1%, there are safer dividends out there.

Upbeat outlook

As Premier slides, Avanti Communications (LSE: AVN) is rising today on news that the company has raised £60.6m by issuing new shares to fund the construction and launch of the HYLAS 4 satellite. What’s more, Avanti’s management believes that this will be the final fundraising required before the group becomes cash flow positive.

It seems as if lenders were clamouring to provide Avanti with cash to fund the construction of HYLAS 4, the larger of the two satellites the group has under construction. Avanti said it considered a range of funding options, including debt, but settled on the equity raising. Possibly because equity was the cheapest alternative with the most flexibility.

Unfortunately, alongside the fundraising news, Avanti also reported a widening of its first-half pre-tax loss. Avanti reported a pre-tax loss of $48.1m for the six months ended December 31, 2014, compared to a loss of $41.8m reported for the same period last year. Revenue rose by 24% to $31.1m, although increased depreciation costs outweighed revenue growth. Operating expenses also increased by around 5%.

Still, even though these results were disappointing, group said it expects a “material increase” in revenue in the third quarter. In addition, the company believes that it has a “substantial and visible pipeline” of new business that it expects win over the next 12 months.

So, based on this outlook, it seems as if Avanti’s future is bright. 2015 will be a make-or-break year for the company.

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Rupert Hargreaves 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.

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