Avanti Communications — Update 28 February 2016

Avanti Communications — Update 28 February 2016

Avanti Communications

Andy Chambers

Written by

Andy Chambers

Director, Industrials

Avanti Communications

New customer in Turkey

Contract win

Fixed satellite services

29 February 2016

Price

101.75p

Market cap

£150m

Net debt ($m) at 31 December 2015

481

Shares in issue

147.4m

Free float

100%

Code

AVN

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

Business description

Avanti Communications is a London-based fixed satellite services (FSS) provider. It sells satellite data communications services to service providers in key markets of Enterprise, Broadband, Carrier Services and Government. It has Ka-band capacity on four satellites, with two launches due in 2017.

Analysts

Andy Chambers

+44 (0)20 3681 2525

Roger Johnston

+44 (0)20 3077 5722

Avanti Communications is a research client of Edison Investment Research Limited

In our view Avanti’s recent positive news significantly outweighs the neutral in terms of equity value. Avanti has announced a new contract for the provision of services to İşNet in Turkey. Meanwhile, S&P placed the bond issue on CreditWatch Negative, which has no meaningful impact on the financials, nor would it if S&P joins Moody’s on a lower rating. As Avanti builds its sales and cash flows, the rating announcement should prove irrelevant. We maintain our view that the potential equity value is 427p, with upside as risk is retired.

Year end

Revenue ($m)

PBT*
($m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

06/14

65.6

(93.0)

(85.2)

0.0

N/A

N/A

06/15

85.2

(73.3)

(61.4)

0.0

N/A

N/A

06/16e

86.7

(77.8)

(52.8)

0.0

N/A

N/A

06/17e

126.3

(39.6)

(26.7)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding exceptional items.

Avanti announced another new customer contract this morning. İşNet is a leading provider of telecom services in Turkey, having historically supplied high-end banking telecommunications. It is a subsidiary of Türkiye İş Bankası, one of the leading banks in the region. It appears that Avanti’s peers may be suffering capacity constraints in Europe. Given comments on H2 revenue build at the time of the interims, we expect further contract wins in the near future to maintain progress.

On 26 February S&P reaffirmed its B rating on Avanti’s bond issue, but placed it on CreditWatch Negative. Its rating is currently higher than Moody’s. The move should be set in the context that the bond has not been behaving, nor has it generally been regarded, as a B-rated issue. If S&P does downgrade, it would have to move two notches to align with Moody’s. A CreditWatch listing does not make a rating change inevitable, but given the split rating it would appear probable. It does not alter any of the financial terms surrounding the bond. Avanti continues to pay 10% interest and has incremental liquidity headroom of $71m. The bond also has a relatively long-term maturity, by which time Avanti should be displaying its cash-generating capability, having adding capacity via its two new funded satellites, HYLAS3 and 4.

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New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

STV Group — Update 25 February 2016

STV Group

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