Wednesday, September 05, 2007

Avanti Screenmedia gets a new lease on life

... Well, not technically a lease, more like a loan. According to this news release on CNN Money (and originally reported at Digital Out of Home), the troubled digital signage network operator (among other things) saw its stock price soar 38% to a still-paltry 4.50 pence (about $0.10) on news that it had secured a £100,000 loan and was no longer reliant on its overdraft facility. This comes almost exactly a month after their announcement that lower than expected quarterly earnings would force them to look for immediate sources of capital, or else cease operations.

While Avanti certainly isn't in the clear yet, a fixed-term loan is certainly much less precarious than a high-interest overdraft facility and will hopefully give them some breathing room. They claim that ad sales on their networks are strong and already exceed those for all of fiscal '06, so perhaps there's yet hope for the company. Still, given their remarkable burn rate I wonder if a £100,000 loan isn't akin to putting a Band-Aid (or 'plaster' for all you Brits) on a sucking chest wound. Sure, the thought is nice, but can it really improve things to the point where they can get back on their feet?

To have any chance at success, it seems like Avanti has three choices: solve operational deficiencies that prevent their networks from becoming profitable, pare down operations and focus on high-competency, high-margin services, or else start/win a massive new project and raise additional growth capital. With regard to the first case, I don't know anything about their technical, logistical or sales units, but it seems that a firm of their network size has far too many people in place to be healthy, and I have to imagine there are efficiencies that aren't being fully taken advantage of. In the second case, the firm could, for example strip down and become a research-only firm, but that would put them into competition with WPP-backed MEC and others, which could be uncomfortable. And while the last method often works on the US market, where investors will do practically anything in the name of growth, I have to wonder if it would be an effective strategy elsewhere. Not to mention that with the trouble they're having managing their existing network assets, adding more onto the pile might not be the best idea.

Good luck, Avanti.

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