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Avanti Communications: Director Buying & Cenkos Note with 900p target: Buy

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The share price of AIM listed satellite group Avanti Communications (LSE:AVN) was marked down by 10% yesterday. Oh no! Is bear raider Evil Knievil right after all? Is there an institution bailing? The emails flooded in. Evil is not correct. A director has bought shares this morning and there is also an upbeat broker research note out from Cenkos this morning. If there was something amiss then Avanti would have had to declare it at its recent AGM. It did not.

My own support for Avanti is well known. The stock was a share tip from me at 116p on t1ps.com but I continue to value it at a multiple of today’s 223p – a market cap of £251 million.

To read my detailed buy case click HERE

In the interests of balance the bull v bear case ( myself versus Evil Knievil) is outlined here

Clearly Non Exec director Paul Walsh ( also CEO of Diageo) does not buy Evil’s line. He bought 10,000 shares at 217p this morning – his fourth share purchase since joining less than a year ago. Okay, Walsh is as rich as Croesus so this is small beer (pun, geddit?) to him. But the consistent purchases by a raft of Avanti directors over the past year is now a material amount. It adds up. Walsh is a smart cookie and from a reputation point of view I cannot see him want to be seen to buy shares just before bad news. And there is no bad news.

The Cenkos note reads:

M&A in Ka? Yesterday’s share price fall of 10% suggests the equity market is still very near term focussed when it comes to judging the investment opportunity at Avanti. While the recent push back of forecasts by roughly one year is still washing over the shares, the long term upside remains substantial. The company is still winning business at a rate (£11 million a month) which will swell out both existing satellites in 2016 and once all three satellites approach capacity, Avanti could generate EPS significantly north of 100p.

Meanwhile, the NAV does not even reflect the build cost of the fleet (let alone the spectrum) and our DCF valuation of c900p gives a feel for the longer term prospects. Newsflow of late has also been positive with the ITU having ratified the spectrum rights for HYLAS 2 and recent press reports that Viasat (VSAT) is looking at M&A opportunities in Ka band outside the US. Any transactions in this field would, at the very least, focus attention on value opportunities across the industry and Avanti remains a unique quoted play in this respect.

I think the Cenkos valuation is low and explain why here

Either way the shares are a buy

Libertarian investment writer Tom Winnifrith writes extensively for a number of US and UK financial websites. All of that material appears on his own blog, which also carries his extensive original non financial material, at TomWinnifrith.com – for alerts on all Tom’s writings follow him on twitter at @tomwinnifrith

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Comments

  1. laviniamalabe says:

    Tom

    “Avanti seems confident that without compromising on price it will have HYLAS 1 and 2 full by 2016 on which basis I still believe that free operational cashflow will be £80 million in FY 2016. By 2018 with HYLAS 3 really driving the show that number should be c£240 million.”

    Surely those numbers can’t be right , if a full Hylas1 and 2 would be generating 80m in free cashflow in 2016 how is it possible for Hylas 3 to add 160m to that when its capacity is less than 30% of H1 and 2 combined,

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