Avanti Communications – ready for lift-off

I'm a believer in the investment proposition of Avanti, and I have quite a large holding. The November launch of HYLAS1 should be an exciting time, a one-off event that should get good news coverage and drive an increase in interest in the shares. The likelihood of success with the launch is very high.

In reply to sirlurkalot, post #1

Hi SirL - good to hear that you're in these too, and endorse the investment case.

Two news releases already this week:

Launch date set for HYLAS1 - set for 25 November upon an Ariane 5 launch vehicle.

Two new contract wins - for HYLAS1

Another HYLAS 1 contract win announced earlier this week with Hungarian service provider Banknet Kft, keeping the momentum going ahead of the 25 November launch.

Banknet Kft provides critical communication services to the financial community
throughout Hungary and, as the sophistication of banking and credit card systems
increases, anticipates steady growth in demand for connectivity.

Commenting, David Williams, Avanti Chief Executive, said: "I am delighted that a
provider of such critical financial services has selected Avanti as its partner.
It demonstrates the value of the flexibility and high security which HYLAS 1 can
offer and I am pleased to see sales momentum in the enterprise sector growing
ahead of the imminent launch."

Less than one month to go now...

IMO today's RNS is a bit naughty.
http://www.investegate.co.uk/article.aspx?id=201010290700052156V&fe=1
The success of flight 197 isn't relevant to Avanti, and a different RNS title would have been more appropriate.
Launch day is the same date as the start of the first Ashes Test in Brisbane, and I hope both will be a success!

Yes, there was really no need for it except for marketing purposes - and building hype!

It's worth noting here that despite the launch of flight 197 being a success, Eutelsat's satellite developed problems with its propellant system meaning it could not be moved to it's correct position.

Ordinarily, the spacecraft would have used their own propulsion systems to circularise and refine their orbits at a geostationary altitude of some 36,000km. But engineers in contact with W3B noticed through Thursday night that the satellite was losing propellant.

With insufficient means to refine its orbit, Eutelsat had no option but to declare the mission lost.

http://www.bbc.co.uk/news/science-environment-11652320

So whilst determining the risk attached to Arianespace and the launch vehicle, investors should also factor in the possibility of losing HYLAS 1 due to a malfunction attributable to build quality and incomplete testing.  Only when Avanti Communications Group Plc (LON:AVN) confirms it is in control of the satellite and can position it can we breathe easily...

SM,

Yes, well spotted, but it sounds as thought the fault with the Eutelsat satellite was in the satellite itself, rather than the Ariane launch vehicle, and the latter did its job as required.

Avanti Communications (AIM: AVN), the satellite broadband operator, has been informed that its HYLAS 1 satellite has been fully fuelled and will be integrated with the Ariane 5 launch vehicle tomorrow ahead of the launch on Friday, 26 November. The launch will be webcast live at www.arianespace.com and will occur in a window between 18.39 and 21.54 Greenwich Mean Time.

http://www.stockopedia.co.uk/shares/avanti-communications-group-plc-LON:AVN/news/rns/101117avn000605.htm/

8 shopping days till Christmas...

Just a reminder that we can watch our investment go up in smoke [hopefully into orbit? - Ed] via this link tonight.

http://www.videocorner.tv/videocorner2/live_flv/index.php?langue=en

Live from French Guiana from 6:24pm, with a launch window for the Ariane 5 mission between 6:39pm and 9:54pm.

Fingers crossed all. 

SM

Yes, it will all go horribly wrong live on webcast! But seriously, I doubt there'd be much problem with the rocket taking off normally, the more significant problem is the deployment of its cargo up at orbit and getting the satellite going properly, which won't be webcast. The webcast will just be a straightforward picture of a rocket taking off and going upwards and that'll be it.

Hylas-1 successfully launched, separated in orbit and signal received. Still plenty of testing to do, but looking good so far.
http://www.bbc.co.uk/news/science-environment-11846237
http://www.indianexpress.com/news/satellite-jointly-built-by-isro-successfully-launched/717044/

Confirmation RNS this morning that the launch "was perfect" and that "all systems checks showed full spacecraft functions to be working correctly."  :oD

David Williams, Chief Executive of Avanti Communications, commented:  "I am delighted that HYLAS 1 is safely in orbit and operating as planned under our control.  

"HYLAS 1 is a uniquely flexible satellite and we are now delighted to be able to offer broadband to communities, businesses and governments around Europe who previously suffered from the lack of high quality communications.  Anyone in the UK and within our European beams who needs broadband can now have it, regardless of their location.

"Before we begin to put customer traffic onto the satellite in the New Year, we will be working to enhance the revenue generating potential of the satellite.  As a result of certain extra design activities during manufacture HYLAS 1 has higher performance than the original design provided for and is able to offer certain new services.   We will analyse the precise performance characteristics of the satellite in these operating modes before commercial service commences. 

"This is the first major step for us in creating a business which I hope will lead the World in Ka band satellite communications."

Well done on the launch all who hold. I don't at present.

Now satellite 1 is derisked, what do you folks think the company is worth on an operating basis. SM says he doesn't know what earnings will be, and 3x 2015 revenue (based on SM's estimates) seems like a pretty high price for a regular company. But if costs are low then perhaps it's not such a bad deal.

So are margins going to be 10%, 50% or 90% - can anyone make a guess?

MCF,

I reckon there'll be plenty of detail on finances in the results on Wednesday 1 Dec.  This management aren't shy about promoting themselves.

Valuation is more about NPVs than revenue or earnings multiples. Perhaps it's appropriate to allow extra valuation to Avanti for the right to put into the sky up to ?12 satellites each of which has a significant positive NPV. Later satellites can to an extent be funded by pre-sales from their eventual users, once Avanti has the credibility of it's first satellite up and working.

We probably need a new thread by the way - ready for lift-off sounds a bit historic now!

http://www.globaltelecomsbusiness.com/Article/2726047/Sectors/25204/Satellites-to-expand-broadband-to-remote-areas.html

“We won’t do end-user marketing,” says Williams. Avanti will sell its services on its first satellite to telecoms companies in Europe....UK-based Avanti is aimed at providing fixed rather than mobile services, using satellite dishes attached to walls and rooftops pointing at the Hylas 1 satellite"

"Williams expects the monthly charge to end users to be around £25, of which Avanti will get about half. That works out at £150 to Avanti from each customer each year, or £50 million if its retail partners sell all 350,000 possible subscriptions. “That will pay the satellite off in 26 months,” he adds. And the £120 million satellite will last an estimated 15 years. “It’s a beautiful printing press in the sky."

"Ka-band satellites are smaller — and therefore lighter in weight and so cheaper to launch — and the higher frequency means the receiving equipment is also smaller and cheaper. “You need a satellite dish that’s 60-70 centimetres across."

"Avanti’s founders were early converts to the idea of using a frequency band that previous satellite companies had scorned. “No one else thought that the Ka-band was valuable in those days,” says Williams...one of the big advantages to Avanti was that there was so little interest in the frequency band that the company paid nothing for its licence. It’s a UK licence, awarded in 2005, but because frequencies are coordinated internationally through the ITU, Avanti is not restricted to UK services. “We have 14 gigahertz of spectrum and three orbital positions,”

Avanti Communications (LON:AVN) issued its Interims to 31-Dec-10 yesterday.  As expected revenues are down and costs up as this is the period in which the first Ka-band satellite HYLAS1 was launched (with previous rented Ku-band capacity wound down) and before being declared operational (this is expected next month).  Useful information on progress was disclosed in the results as follows:

HYLAS1

During the period HYLAS 1 was successfully launched. The satellite has now substantially completed its testing and is in excellent condition.  The satellite reached geostationary orbit very efficiently and as a result HYLAS 1 is expected to achieve longer useful life than planned.  Following completion of certain confidential pre-service commercial missions, Avanti expects to declare In Orbit Acceptance and begin regular commercial operations in March, at this point Avanti will advise the market on the amount of life extension.

HYLAS2

The HYLAS 2 procurement is proceeding well and no slippage on the original delivery date has been reported. HYLAS 2 is therefore due for launch in the first half of 2012.  The critical design review was passed without problem, long lead item components were delivered and the satellite is now being assembled.  An appropriate launch slot is reserved with Arianespace for launch on an Ariane 5, and the establishment of gateway earth stations is proceeding well.

HYLAS3

We previously described our strategy to seek efficient ways to finance the HYLAS 3 satellite.  The debt finance secured from export credit agencies for HYLAS 2 provided relatively high leverage, thus minimising equity dilution for shareholders, and also bears a comparatively low coupon of below 6%.  In order to repeat this success, we decided to seek pre sales contracts from customers on the HYLAS 3 satellite, which can then be used to finance the satellite in the debt market, protecting shareholders interest.  Such financings are time consuming and complex, but well suited to a business like Avanti which has very long term assets and aspirations.  I am pleased to report that we are in advanced negotiations on several significant pre-sales contracts which should enable us access efficient capital and we hope to update the market soon. 

Contracts

The demand for our services is very strong and our pipeline of opportunities continues to grow. The order book (also known as "backlog" in our industry) across the two satellites now totals £229 million with the average length of contracts being 7.2 years for HYLAS 1 and 4.3 years for HYLAS 2. The average prices per MHz per month are materially ahead of expectations.   The pipeline of potential new business in negotiation amounts to £389m, not including transactions which are under negotiation to support the efficient debt financing of HYLAS 3. 

The contract backlog and pipeline give us high confidence that we can achieve the three and five year sell out targets we set ourselves.

The 'Data Crunch' Opportunity

Our opportunity is not specific to one product or market, but more generally to the global growth in demand for data.  The proliferation of new internet applications, particularly those which are video intensive, and new devices enabling consumers to connect to the internet are the drivers of our market.  In developed markets, data demand is rising strongly and in emerging markets, vast new populations are coming to digital media for the first time.  Whether it is connecting businesses, homes or government users directly, or providing wholesale network capacity for other telcos, Avanti is convinced that for a long time to come, the World's demand for data will greatly exceed the World's supply of telecoms capacity to transmit data, especially outside the biggest cities, and we call this the "Data Crunch".   Avanti's high capacity satellites are in a perfect position to exploit this trend.

Further to last week's Interim results mentioned above, here's a useful summary of the investment case, from The Telegraph, for information:

http://www.telegraph.co.uk/finance/markets/questor/8329063/Questor-share-tip-Avantis-share-price-fall-means-its-a-good-time-to-buy.html

I sold out of Avanti Communications (LON:AVN) some time back around the £4.50 mark as the SP fell back to earth, but observe that the chart is curving round nicely, as presumably the company has continued to sell capacity on the first satellite already in orbit, and also the second one. Which is the reason for returning to the thread - as the launch date for HYLAS 2 is tomorrow night at 9:50pm from French Guiana upon an Ariane 5 launch vehicle.

Assuming the launch is successful and the satellite is in communication, then the shares may see some benefit (though that's what I thought upon the launch of HYLAS 1, and it was extremely shortlived!).

You can see the launch live from this link, if you can tear yourself away from cycling, volleyball, badminton, etc... http://www.arianespace.com/news-mission-update/2012/931.asp

SM

The Ariane rocket successfully launched Avanti Communications (LON:AVN) 's HYLAS 2 satellite into orbit last night (and an Intelsat satellite) with no problems at all. Arianespace put on an impressive live launch cast, and the small section covering the launch can be viewed here http://www.youtube.com/watch?v=wGN0d0r21iw

This morning's confirmation RNS stated:

HYLAS 2 successfully launched and now in orbit

London - 3 August 2012. Avanti Communications Group plc (AIM: AVN, "Avanti" or "the Company"), the satellite operator, announces the successful launch of HYLAS 2 from the European Spaceport in Kourou, French Guiana on Ariane Flight VA208 on Thursday 2 August at 9.54pm UK time.

The Ariane 5 launch was perfect, injecting HYLAS 2 into the correct orbit precisely on schedule. HYLAS 2 separated from the Ariane 5 on time and telemetry was received at the control centre at the European Spaceport.

David Williams, Chief Executive of Avanti Communications, commented:

 "I'm delighted that our second satellite, HYLAS 2, has been successfully launched and is operating under our control. It will now undertake a series of pre-planned in orbit acceptance tests over the coming three months before we commence service for customers.

 "HYLAS 2 will provide high speed data capacity across Africa, Caucasia and the Middle East. This service changes everything in the data markets in those regions that have previously left companies, Governments and consumers poorly served. The comparatively attractive economic backdrop and huge unmet demand evident in these regions give us great confidence that our decision to move into emerging markets was the right one, and our early mover advantage should drive strong profitability."

 

Share price initially spike up 20p on the news and is settling back just under £4 for now.