Ellies in deep trouble

Ellies released its annual results for the year ended 30 April 2023, which revealed that the company is in tremendous trouble.

The company’s total comprehensive loss increased by 96% to R85 million, significantly more than its market cap of R56 million.

Ellies also informed shareholders that its net asset value (NAV) per share declined by 64% to 6 cents, down from 17 cents per share a year ago.

The group admitted that it posted disappointing results, explaining that demand for its satellite installation and a portion of its retail offering came under pressure.

Increased demand for its alternative power solutions increased because of load-shedding, including UPS backup solutions, generators, and solar and surge protection products.

However, constrained working capital limited Ellies’ ability to capitalise on the surge in demand for these products.

Ellies told management that its restructuring is now complete and that it has begun to see the benefits of a reduced operating expense base.

It also said its diversification away from the traditional satellite business to a smart home infrastructure business is progressing.

Ellies is finalising an agreement with its bankers for an extension to its term loan, currently due on 30 April 2024, and an increased working capital facility. It should be finalised this month.

Buying Bundu Power

The company is hanging its hat on buying Bundu Power for future growth and benefitting from South Africa’s electricity woes.

Bundu Power, founded in 2005, specialises in the distribution and rental of generators and the distribution and installation of solar and ancillary products.

It provides alternative energy solutions for residential, commercial, industrial, hospitality, agricultural and recreational users.

Ellies said the value of Bundu Power’s net assets is R48.7 million, and its after-tax profits for the year ended 28 February 2022 was R11.2 million.

It further estimated that Bundu Power’s profit after tax for the year ended 28 February 2023 is R20.4 million.

To buy Bundu Power, there will be an initial payment of R72.6 million, with three earn-out payments not exceeding R130 million in the 2023, 2024 and 2025 financial years.

Ellies will, therefore, pay around R200 million for Bundu Power which is pricey considering the increasingly competitive alternative energy landscape.

To finance the initial payment to the sellers of Bundu Power, Ellies plans to undertake a fully underwritten renounceable rights offer, raising R120 million at an issue price of 7 cents per share.

With Ellies’ market cap of R56 million, it is closer to an initial public offering for Bundu Power than a capital raise for Ellies.

Shareholders have seen their value decline by 56% over the past year and by 99% over the past decade.

To be asked to pump significantly more money into the company did not go down well with many investors, who have dumped their shares in recent months.