Spark now missing
THE SOUTHERN ELECTRICITY company (SELCo) – which provides services to African electricity networks – should be a counter that attracts loads of attention. But SELCo lacks spark. The group is small (almost obscure at a R25m market capitalisation), generates inconsistent profits and the share is tightly held (RMMS Investments holds 88,4% of its 55m issued shares).
In February this year an agreement to add considerable critical mass to the listed business was mooted. Not only would revenues be bolstered but the new-look business would also hold a more reassuring spread of services. Sadly, the agreement was terminated recently, purportedly due to prevailing market conditions.
The deal was essentially a related party reverse listing involving SELCo buying Rural Maintenance and Netelek UK, as well as 49% of Netelek Holdings. Those assets would be acquired from Resource Management Integration Group – the company that effectively controls SELCo – for R320m. Settlement involved the issue of 640m SELCo shares at 50c/share.
The deal effectively brought related parties together under one listing and increased SELCo’s business outside its core Namibian markets (that is, reducing possible political risk). Rural Maintenance also added “secure, long-term proven revenue streams” while Netelek UK/Netelek Holdings would have provided access to electricity consumption metering and invoicing technology, which appears to have attractive royalty revenue streams.
The truth is there’s nothing particularly compelling about SELCo, which produced a measly operating profit of R540 000 from turnover of R16m in the half year to endDecember 2007. Without corporate action, SELCo simply doesn’t appear to have the operating assets to light up sentiment. Its share price quite possibly still reflects a notion it might be possible to revisit the reverse listing transaction in the not too distant future. But SELCo could prove a huge opportunity cost should nothing transpire in the foreseeable future.