Timidity comes before fall
GIANT: ELLIES’ SHARE PRICE CRASHED BY 60% – FROM FIVE CENTS TO ONLY THREE CENTS
Its bankers declined to finance the acquisition of Bundu Power.
Ellies Holdings has had a good run since the electronics company started in 1979, so it came as a big surprise when the company announced that it would not publish its latest financial statements and instead seek protection from creditors through voluntary business rescue.
The final blow to the once-thriving business was that its bankers declined to assist with financing for the acquisition of Bundu Power, which would have given Ellies a big footprint in the fast-growing industry of getting homeowners off the national grid.
From the top of the mountain down
Ellies saw its fortunes really improve in 1986. It grabbed the opportunity to install satellite dishes when M-Net launched in South Africa.
Maybe management had long meetings and was worried about the risks of backing the new technology back then, but it worked out well, and Ellies joined the big leagues, listing on the JSE in 2007.
The share started trading just below R2, reaching a high above R9 in 2013.
Unfortunately, it has been downhill since.
By 2014, the share had nearly halved to less than R5, dropping below 10 cents in 2020.
It crashed by 60% on Wednesday – from five cents to only three cents – when management said it “voluntarily” opted for business rescue. It looks like Ellies could not muster the courage to grab new opportunities like it did in earlier years. Did its management not notice that the writing was on the wall for satellite dishes and that the new games in town were residential power systems and fibre networks?
Too late
Ellies tried to get into the solar and backup electricity systems market by making an offer for Bundu Power in February 2023, but probably waited too long.
Ellies was stuck too long in declining markets, and its balance sheet was just not good enough to be able to buy a growing (and valuable) company operating in one of the hottest sectors in SA.
Bundu Power, founded in 2005, specialises in the distribution and rental of generators as well as the distribution and installation of solar and ancillary products, alternative energy solutions for residential, commercial, industrial, hospitality, agricultural and recreational users.
The owners of Bundu Power accepted an offer of nearly R207 million for their business, but Ellies could not raise the money.
Changing market
It said the company was “repositioning itself as a smart infrastructure business which will include comprehensive solutions for alternative energy, water storage and harvesting, connectivity and smart home technology”.
“The acquisition of Bundu Power is the first building block of the new strategy and will expand the Ellies portfolio of alternative energy solutions.
“Ellies, in turn, provides Bundu Power with an expanded Southern African distribution network and access to a group with a level 1 BBBEE [broad-based black economic empowerment] status,” it said when announcing the proposed acquisition in December.
It said Bundu Power had assets of around R77 million and was on track to earn a profit after tax of close to R34 million in the financial year to end February 2024.
Reliance on MultiChoice
More telling was a comment about the group’s continued reliance on satellite dishes as recently as last year: “Ellies’ performance for the financial year has been disappointing and further highlights Ellies’ reliance on MultiChoice.
“Ellies’ satellite business has decreased by 70% from 2018 and, whilst the efforts to replace the revenue with alternative contributions have shown positive results, it is insufficient to stem the ongoing losses.
“The anticipated move from the traditional satellite business was much slower than anticip at providing ed due to a relatively fixed cost base to service this category.
“The Fifa World Cup, held every four years, is the main generator of new DStv connections, and the same was expected in October 2022. Unfortunately for Ellies, the matches were also broadcast on SABC, and new satellite connections failed to materialise.”
Management also said many South Africans have curtailed their discretionary spend, and “satellite services, such as those offered by DStv, have seen a significant decrease”.
It will be interesting to see if the process of business rescue will be able to save Ellies.
The balance sheet as at end April 2023 showed cash of only R3.6 million compared to R8.9 million a year earlier, while interest-bearing debt and bank overdrafts increased from R64 million in April 2022 to R169 million in 2023.