Avanti
Communications*, the broadband satellite
company, has today announced a placing
(conditional, amongst other things, on
shareholder approval at a General Meeting
to be held on 28th July) of
16,279,070 new shares at 430p each with
existing and new institutional shareholders
to raise £70 million (before
expenses). This is principally to enable
the company to initiate the purchase of its
third satellite, Hylas 3, “in
order to take advantage of possible new
business development
opportunities”. We continue to
believe the cash flows Avanti’s
satellite operations are poised to start
delivering remain far from discounted in
the current share price and our stance
remains buy.
The placing funds are to be
primarily used to repay facilities
of
£32 million (£53 million
including accrued interest and an early
repayment discount) borrowed in order to finance
Avanti’s Hylas 1 satellite –
and necessary to be repaid in order to
enable the company to advance its current
Hylas 3 plans and a plan to
re-domicile Hylas 2 satellite assets
offshore which should generate significant
tax savings. The strategy for Hylas 3 is to
begin the procurement with a relatively
small cost commitment with the aim of
negotiating sufficient customer commitments
to support long term financing. Given the
demand the company has seen for Hylas 1 and
2 (it reports on the latter that the
progress being made means it “is
confident that it will be able to sell
HYLAS 2 capacity within the expected
timetable”), we regard this as a
sound strategy.
The company
added that “trading has been
satisfactory in the financial year ending
30 June 2010 and performance is in line
with market expectations” but
did note that “although the
satellite itself is expected to be ready on
schedule, uncertainty surrounding the
readiness of the new Soyuz launch pad in
French Guyana has led to a scheduling
risk”, with an estimated
potential risk of delay of up to six weeks
from the proposed end September launch.
However, a potential such delay is
insignificant in relation to the long-term
cash flows Hylas 1 looks set to still soon
be generating and directors John Brackenbury and Nigel Fox showed
their continued confidence in the company,
taking £34,400 and
£5,000 more shares respectively in
the placing – and Avanti is also
intending to seek a move from AIM to the
main market in due course.
We expect the
use of the placing funds will prove highly
value-accretive down the line and thus
continue to regard a share price target of
1125p for Avanti shares as conservative. As
we move towards the launch of Hylas 1, we
continue to view the current share price as
presenting an attractive opportunity to get
on board what is a fast emerging
intercontinental satellite player. At 484p,
we continue to view shares in Avanti
Communications as a compelling
buy.
