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Ellies’ new growth drivers

Alternative energy and satellite internet come after digital TV migration.

JOHANNESBURG – Ellies, the bustling electrical and electronics group, remains a work in progress three years after its listing in September 2007.

headline earnings per share in the six months to October were stagnant but that masked some pretty big investments in the future.

CEO Wayne Samson told Moneyweb that Ellies has tied up with SkyVine in the UK to provide high speed internet mainly to areas beyond the reach of existing internet service providers inside and outside SA.

He says the cost of this bi-directional connectivity to consumers will be $80 a month with download speeds of 4mb/s and upload of 256kb/s. The price is higher than those of established players but this is for remote places.

The company has also invested in alternative energy. It wants to get deeply into low pressure solar geysers and lighting. Samson says more and more townships are being built off the Eskom grid and low-cost geysers will be needed in large volumes to fill the gap.

One of the problems with Ellies has been that El Dorado is so often just a few months down the track.

It expressed huge excitement over the impending migration to digital TV. This has been held up by problems at the SABC but Samson sees light now that the final digital broadcast specifications have been published.  Ellies will be installing set top boxes made by Altech. Some 9m viewers are expected to buy these boxes from a handful of suppliers. That covers just migration of SABC viewers. You will need similar boxes for eTV and DsTV. Altech/Ellies expects to enjoy biggest market share.

Ellies devoted most of its cash flow in the half year to its future.

“We repaid vendor loans of R14m. We are pleased that management of Megatron converted some of their loans to shares, which were priced at a premium to the market price. That was an expression of confidence and reduced debt.”

Ellies spent R9m improving manufacturing, R26m on working capital. It also decided to purchase properties currently leased for R25m (R43m by the year end).

Samson says security of tenure and the freedom to change buildings were important considerations. He says the saving on rent will more than justify the outlay.

In spite of this spending, debt: equity fell to 18.9% (38.2%) and interest was covered 14.6 times by pre-interest profit.

Samson was a good deal more subdued after publishing interim results to October on Tuesday than he was at last March’s showcase presentation to prospective investors at the JSE.

Then he said Ellies motto was “bringing the future to your home”. He said he loved the business, which was in hugely exciting areas, from digital TV migration to mini sub-stations and alternative energy. 

The stock market was clearly disappointed and marked the share down 1.4% to 211c.

Samson was clearly let down because he felt headline earnings rose a respectable 11% to R48.7m in the six months to October. The 32.8m shares sold in the rights issue to retire debt held the half year earnings per share steady.

Write to David Carte: davidcarte@moneyweb.co.za

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