Investors could face big losses at Avanti Communications Group plc, Imagination Technologies Group plc and Gulf Keystone Petroleum Limited

Shares in satellite communications firm Avanti Communications Group (LSE: AVN) rose by 10% this morning, after the company announced a $29m deal with mobile operator EE.

Avanti shares have fallen by more than 40% so far in 2016. Today’s headline figure of $29m sounds impressive relative to last year’s total revenue of $85m, but the amount will be spread over a “multiyear” period.

Avanti didn’t say how many years, but given that this deal is to support a major mobile network, it could well be a long-term contract. In my view, Avanti’s EE contract is unlikely to be enough rescue its disastrous cash flow situation.

Last year, the firm generated a cash loss of $62.5m on turnover of $85m. That’s terrible. The firm’s recent interim results were no better, and capital expenditure also remains high.

One reason Avanti’s cash flow is so poor is that utilisation of its satellite network is only 25%-30%. The second reason cash is so tight is because of the amount being spent on interest payments, which are running at about $57m per year.

Avanti is expected to report a loss this year and next year. Interest payments currently absorb more than half of total revenue. In my view, these shares are likely to fall further.

An uncertain future

Despite a five-year run of worsening results, Imagination Technologies Group (LSE: IMG) still trades on 25 times 2017 forecast earnings. Investors must be very confident that the firm’s turnaround plans will deliver a profit in 2016/17, after three years of losses.

I’m not sure I share this confidence. Falling iPhone sales won’t be helping Imagination, which supplies a key graphics chip for the premium smartphone. Apple recently considered buying Imagination, but decided against it.

The company’s recent results said that royalty payments had been lower than expected and mentioned delays to new licensing deals. Although Imagination is cutting jobs and expects to sell its lossmaking Pure digital radio business this year, I think that the shares are a risky buy at the current price.

Shareholders could lose everything

Few companies are as close to the edge as Gulf Keystone Petroleum (LSE: GKP). The Kurdistan oil producer’s lenders have agreed that Gulf can delay interest payments while it tries to negotiate a new financing deal.

Gulf’s latest update makes it clear that the firm is now in default on its bond repayments. This means that the company’s lenders will have to approve any refinancing deal and are likely to be heavily involved.

To add to its problems, Gulf needs to spend a minimum of $71m just to maintain its production at current levels. The firm doesn’t have this cash. So what happens now?

The fact that Gulf is in default means that unless shareholders are able to take part in the refinancing of the firm, they’re likely to be left with almost nothing. A debt-for-equity swap — where Gulf’s bonds are exchanged for new shares and fresh cash — is now likely. Existing shareholders’ would see their stake in the company diluted, probably by 90% or more.

I believe Gulf’s current 4.8p share price is a good selling opportunity.