A STOCK BEST AVOIDED
Ellies has announced details of a capitalraising exercise, which is in part helped by the share-price spike after the HCI fallout in that issuing new shares at 110c isn’t so bad compared to the 90c-odd level I would have expected. But the higher price enabled the board to move quickly and get a better deal that sees t wo directors showing confidence by committing loans to the value of R45m while another R120m will be raised by issue of shares for cash and a rights issue. The other, less charitable view is that the directors are saving the company from collapsing – such is the crisis at Ellies. Time will tell, but the bigger issue is that I do not think R165m is enough for Ellies – I expected an amount of about t wice that. So either I am wrong, or there is another capital raising due within a year. Or perhaps the spun-off Megatron will have to do a capital raising once it lands on the JSE. Bottom line, things are still very tough for Ellies and I still advise staying away from the stock.