Avaya Most Compelling Post-Reorg in Recent Times

Last month, I had highlighted Avaya – – a post-reorg that came public via a Form 10-12B filing which is a registration form used primarily for spin-offs.

The stock now trades on OTC and at quite a discount to comps which is why I decided to re-highlight it in this issue.

This company is trading at a deep discount to its peer group.  And I can’t quite see anything visibly horrendous in its financials to explain it.  If the potential is a double or a triple n the stock, why not take a close look.

What’s happened since my write-up last month on Avaya?

One, I now know the share count.  Fully diluted post-reorg shares are 123 million consisting of 110 million primary shares, 5.6 million warrants with an exercise price of $25.55 and 7.4 million shares reserved for employee incentive plan.  Upon emergence, Avaya had $350 million of cash and total debt of $2.8 billion.

And two, on Dec 22, Avaya released fiscal Q4 results – – organic revenue of $790 million was up 5% sequentially excluding the June 2017 divestiture of Networking business.  All else being equal, around mid-year 2018, comparison will become easier for company’s Y/Y revenue growth.

Fiscal Q4 Adjusted EBITDA was $225 million and Fiscal 2017 adjusted EBITDA was $866 million.  So the run rate is $900 million and recall that Chapter 11 projection for 2018 (which tends to be unrealistic 90% of the time) adjusted EBITDA was $708 million.

The stock is currently trading at $17.55, a market cap of $2.1 billion (excluding out-of-the-money warrants) and TEV of $4.5 billion.  That’s 5x TEV /Trailing EBITDA.  Now, seriously.  In the current market, that is where coal stocks exposed to potential black-lung liabilities trade.  I know because I own one.

Here is an updated comp table for Avaya.

 Ticker Co Name  Price  Mkt Cap  Cash  Debt  EV Rev EBITDA EV/EBITDA EV/Rev EV/CFO FCF Yield
MITL Mitel Networks 8.23 988 55 632 1,565 963 126 12.4 1.6 23 4.9%
CSCO Cisco Systems 38.30 189,341 71,588 35,923 153,676 47,789 NA NA 3.2 11 7.1%
BSFT BroadSoft Inc. 54.90 1,738 371 211 1,578 362 NA NA 4.4 26 2.3%
FIVN Five9, Inc. 24.88 1,385 63 33 1,354 189 14 99 7.2 122 0.7%
AVYA Avaya Holding 17.75 2,031 350 2,831 4,512 3,454 866  5.2 1.3  (282) -2.2%


It may be that Avaya is that much a crappier company than these comps but my sense is that it is trading like some post-reorgs do when they are initially listed on the OTC and the stock has been handed to distress debt funds who are usually eager to get out.