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|
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.