Spark now miss­ing

Finweek English Edition - - Companies & Markets - MARC HASENFUSS

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.

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