Avanti has reported Q3 trading that not only allows it to maintain its guidance for revenue growth, delivering a positive EBITDA in Q3, but clearly indicates a path towards free cash generation. With contract momentum building with high quality customers, recurring revenues are growing, satellite capex is almost complete and the financing facilities nearing finalisation appear more than sufficient to execute the plan. As this progress becomes more widely appreciated, we expect the share price to be released from its shackles and start to trend towards cash-based fair values. Our own capped DCF still returns a fair value of 427p per share.
Q3 revenues of $19.5m took the year to date total to over $50m. While the maintained guidance implies a strong final quarter, this is supported by the high order intake and growth from existing customers during Q4. On the order front the recent $29m EE cellular backhaul contract (see our previous note) came after the period end, and thus adds to the end Q3 backlog of $402.0m implying $41.5m of growth since the start of FY16. The backlog excludes sizeable framework contract orders that form a significant part of Avanti’s orders and future revenue streams. Further, the contract is reportedly in support of EE’s 4G network development for the UK’s replacement Emergency Services Network (ESN), which further establishes Avanti’s Ka-band credibility. Gross cash of $122.4m at the period end reflects $40m consumption during Q3 due to planned capex on HYLAS 3 and HYLAS 4 satellite build programmes. HYLAS 3 capex is now largely complete and we estimate HYLAS 4 expenditure to date to be around 80% of the expected total. With new permitted facilities offered and in documentation, we expect confirmation of the additional $71m of liquidity headroom in due course.