South Africa

JSE-listed companies that benefit from load-shedding

A few JSE-listed companies enjoy short-term benefits from load-shedding, including South Ocean Holdings, Reunert, ARB Holdings, Labat Africa, Ellies, and Massmart.

There are also companies which can benefit long-term, including Hulisani, Renergen, the major banks, African Rainbow Energy and Power, and Montauk Renewables.

South Africa is experiencing the worst load-shedding it has ever seen, and experts are warning that it is likely to get worse.

Eskom’s operational challenges are mounting, and there is no clear way out of the electricity shortage hole it finds itself in.

Load-shedding is tremendously damaging to the economy and is hurting South African business confidence.

However, a few JSE-listed companies could benefit from load-shedding as demand for alternative energy sources increase.

It should be noted that the damage caused by load-shedding and the accompanying economic downturn may exceed its benefit.

A good example is Massmart. Although Makro, Game, and Builders will sell more alternative energy products, lower economic growth will be very damaging to the retailer.

Here are a few JSE-listed companies which will benefit from load-shedding.


South Ocean Holdings

South Ocean Holdings is a well-established South African manufacturer and distributor of a wide range of electrical cable products.

Given the massive increase in electrical cable theft due to load-shedding, it will experience higher demand for its products.

In its 2021 annual report, the chairperson noted that “demand for low-voltage electric wire continues to exceed supply”.

South Ocean Holdings is a very small company with a market cap of around R230 million and a P/E ratio of around 3.2.


Reunert

Reunert has an electrical engineering business segment with a significant footprint across the electrical and telecommunications infrastructure industries.

African Cables designs and manufactures a range of electrical conductors, cables, and accessories up to 275 kilovolts (kV). The power installations division specialises in the turnkey installation, testing and maintenance of medium and high-voltage cable systems up to 400 kV.

Zamefa designs and manufactures a comprehensive range of low-voltage electrical energy cables, and insulated wires and cables up to 800 mm2.

The Low Voltage segment supplies electrical distribution, protection and control equipment like circuit breakers, earth leakage devices, surge protection devices, switchgears, and electricity meters.

These products are sure to be in demand due to the increase in cable theft and vandalism, equipment burning out from power surges, and business projects to change energy sources.


ARB Holdings

ARB Holdings consists of an electrical and a lighting business division. While the lighting division could marginally benefit from the sale of more energy-saving backup lights, the biggest benefactor of load-shedding will be their electrical division.

ARB Electrical serves the mining and industrial industries, government, and construction and electrical contractors by providing a wide range of products across the categories of power and instrumentation cables, overhead line equipment and conductors, as well as general low-voltage products.

These products are sure to be in demand due to the increase in cable theft and vandalism, equipment burning out from power surges, and business projects to change energy sources.


Labat Africa

Labat Africa has an energy division with two businesses, Force Fuel and Autogas.

Diesel, petroleum and illuminating paraffin are ordered through Force Fuel, and these products are delivered to your premises with a minimum order of 200 litres.

This company can see an increased demand for diesel and paraffin as consumers look for alternative energy.

While Autogas aims to convert vehicles to run on natural gas and assist in providing this natural gas, it has a long-term opportunity if businesses elect to use natural gas generators over diesel generators or solar to supply their energy needs.


Ellies

Ellies is an importer and distributor of electrical products and solar solutions and should be well positioned to take advantage of load-shedding.

Its inverter trolleys and cube power stations could have been the default option for people looking for an affordable product to protect against load-shedding.

However, due to continued financial weakness and poor inventory management, the company’s products are regularly out of stock and are not being marketed to the public.

Their recent announcement of layoffs and restructuring will likely further exacerbate their inability to take advantage of current conditions and lead to further underperformance.


Massmart

Massmart’s stores – Game, Makro, and Builder’s Warehouse – are a go-to retailer for most consumers looking to buy inverters and generators and will likely see increased sales on these items.

However, the share price will be unaffected by this due to a pending buyout offer from Wallmart.


Hulisani

Hulisani is one of Africa’s largest investors in clean energy projects. The group has a significant opportunity to expand into future renewable energy and independent power producer projects.

Some of the major investment projects that Hulisani currently holds a stake in include the following:

  • Rustmo1 – a 7MW solar farm, located in Marikana, was the first independent power producer to be connected to the Eskom grid during the 1st round of the Renewable Independent Power Producer Programme (REIPPP) and has a 20-year power purchase agreement (PPA) with Eskom (commenced in 2013).
  • Avon (670 MW) and Dedisa (335 MW) open-cycle gas turbine (OCGT) plants, located in KwaZulu Natal and the Eastern Cape respectively, are South Africa’s only privately owned gas power plants. The plants have 15-year PPAs with Eskom, with the option to renew for another 15 years and have a plant life of 30 years.
  • The Kouga Wind Farm, located in the Oyster Bay region of the Eastern Cape, comprises 32 wind turbines which each produce 2.5MW, bringing the total capacity of the plant to 80MW.
  • GRI Wind Steel, located in Atlantis in the Western Cape, is the only South African operational manufacturer of wind towers. The plant has the capacity to manufacture over 150 wind towers per year – equating to supplying 400MW in new-build wind farms per year.

Renergen

Renergen owns South Africa’s first commercial liquified natural gas (LNG) plant.

While the plant was originally aimed at the transport industry to substitute diesel in trucks, businesses are likely to find several other industrial uses for this LNG as Eskom increasingly fails to satisfy their energy needs.

It will drive demand for LNG on a commercial scale for many years.


Banks

Banks – South Africa’s big five banks are facing overwhelming demand from consumers who want to install rooftop solar with backup batteries and inverters but cannot afford the high capital cost upfront.

Banks are putting together financing options as part of home loans, separate financing backed by solar assets, or even personal loans with much higher interest rates. This will likely continue to be a growing segment of the banks’ income over the next decade.


African Rainbow Energy and Power

African Rainbow Energy and Power – While not currently listed, this company is chaired by billionaire Patrice Motsepe and will likely be a major player in renewable energy in South Africa over the next decade.

The company’s vision is to become one of the continent’s largest suppliers of renewable energy, and they aim to add 5000 MW of generation capacity.

The company is currently invested in 9 projects across South Africa, comprising wind, solar, and biomass.

These projects currently have a combined generation capacity of 740 MW. The hope is that investors will be afforded the opportunity to share in the company’s investments through an IPO in future or through a cross-holding by African Rainbow Capital.


Montauk Renewables

Montauk Renewables is a very small company that has a unique technology that can produce renewable natural gas or renewable electricity from landfills or livestock farms.

The company was listed at the start of 2021, and its share price has since grown by over 90%.

Its electricity generation capacity is very low at only 30 MW, since they tend to focus more on the natural gas export market.

Their renewable natural gas plants have a combined capacity of 33 850 MMBtu/day.

It is unclear if they will consider expanding operations into South Africa. They operate in a challenging environment in terms of legislation on their technology and the potential scalability thereof.


Independent Power Producers

While it is not part of their core business objectives, many large JSE-listed firms have smaller projects for renewable energy that they plan to offer in Eskom’s bid for Independent Power Producers. These include:

  • Mondi
  • Sappi
  • RCL Foods
  • Sasol

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