Small Cap Value Report (10 Jul) - AVN, VNET, ZATT, TMMG, SPRP, SID, RGS, RST, ANCR

10th Jul '13 by Paul Scott

8 comments 24362 reads

Good morning. Avanti Communications (LON:AVN) have issued a trading update this morning. They operate satellites. I've looked at this company many times in the past, and have never been able to find a satisfactory way of valuing it. At 246p a share, the market cap is £275m, and it has a fair bit of debt, since the enterprise value is £416m, yet it has never made a profit - so the valuation hinges entirely on expectations of future profits, which is really not my cup of tea at all.

For the year ended 30 Jun 2013 they say that revenues were below market consensus, due to "timing movements of certain contracts", which in non-RNS-speak personally I would call "delays".

They have £42m in the order book for the current financial year, ending 30 Jun 2014, which compares with forecasts for £63.7m turnover this year, delivering around breakeven. They say they were operating cashflow positive in June 2013.

So it reads like a profits warning for the year ended 30 Jun 2013, but with lots of positive commentary about the future outlook to soften the blow.

After hearing a programme on Radio 4 all about how the many fragments of man-made space junk are orbiting the earth, and putting satellites in peril, I think that was enough to put me off getting involved in anything related to space. I know nothing about the satellite sector, so I will re-enter the atmosphere and look at something terrestrial.

The futures are indicating a slightly softer open, with the FTSE 100 down about 23 points to 6,500 - still a pretty remarkable recovery given that we were knocking on the door of 6,000 recently.

Myself and a ShareSoc Director met with the Chairman of Vianet (LON:VNET) yesterday, and had an excellent meeting. I'll do a more detailed write-up at some point over the next week, but suffice it to say that the company has very much taken on board criticisms about its investor relations towards private investors, and is now striving to improve in that area. I found the Chairman open & straightforward.

Also I was encouraged by what they said about the regulatory threat from the Government's proposed Statutory Code. Whilst it is…

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PhilHofGrowYourDough

10th Jul '13

Hi Paul,

Please can you cast your eye over the Sprue Aegis (OFEX:SPRP) trading update?

Many thanks
Phil

Wilmo1979

Hi Paul

Many thanks for the update on Vianet (LON:VNET). Like you, I've had my fingers burned by gold mining stocks (my fault for getting excited about an area I know nothing about) but still holding them. I keep swaying on selling to put more in VNET so will await their statements. Looking at the business assuming the reg risk can be fought off, my view is VNET at 69p might increase by 75-100%.

One of the most telling comments you make relates to them improving communications - lack of info and access is a real turn-off so improvements there are very very welcome.

Cheers
Matt

MrContrarian

As [Vianet] point out, it would be very difficult for the Govt to legally intervene in commercial, arms length contracts, where all parties are freely consenting adults.

Vianet are probably right that flow monitoring won't be barred but regulation is intervening in the free market and is is sometimes justified to outlaw oppression of minorities or those in a weaker position, market failure etc.

Paul Scott

Hi,

As a follow-up point, I should add that after publishing the above report, I decided to take the plunge and buy a few shares in Sprue Aegis (OFEX:SPRP), which I think is the first time I've ever bought any shares on ISDX (what used to be called OFEX).

Regards, Paul.

Beginner

Hi Paul
Thank you for the work on Vianet (LON:VNET). I too remain optomistic here, at least for the medium term (not least because the dividend due next month will tax, insure, service and MOT my car!!). I also never knew it was one of my human rights to have my pint monitored! I must remind the local landlord. As far as Sprue Aegis (OFEX:SPRP) is concerned there was a failed takeover bid earlier this year. I am not sure how this impacted on the business, but it does seem to confirm that it is a decent company. Regarding Silverdell (LON:SID), the problem here is that the Kitson's subsidiary, which is in administration, seems to generate 60% of the group's revenue. Not good for us, I think.

cig

Interesting that the IG platform shows client numbers (but not sizes I presume?)! Could you report how many people are still long AVN with IG tomorrow? It's down 41% at the moment... (I'm long too, but directly and correctly sized, so no drama, though a bit tempting to break my no-top-up rule given the news itself is not in any way disastrous.)

Re space debris I don't think it matters that much in geostationary orbit: less of them and they should be static relative to your satellite if I'm guessing the physics right. plus hopefully they're insured against satellite loss.

Re ISDX sometimes you can buy dual listed things there, possibly without noticing (e.g. my broker got me Volex from ISDX).

re Silverdell, if they're negociating a fire sale of the whole group to a bigger entity (seems a natural solution to cash flow problems in my naive eyes), would that be a good reason for the silence?

11th Jul '13

"I also never knew it was one of my human rights to have my pint monitored! I must remind the local landlord."

Brilliant - perhaps we could get t-shirts printed!

Small Cap Value Report (10 Jul) - AVN, VNET, ZATT, TMMG, SPRP, SID, RGS, RST, ANCR

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Paul Scott

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