Established in South Africa in 1979, Ellies Holdings is a leading manufacturer, wholesaler and distributor of electronic products related to satellite and terrestrial television reception. The company is also a market leader in domestic electrical and industrial audio products, and a major importer of associated products for sale. Ellies is broadly split into Infrastructure and Consumer Goods divisions.

The group has trading divisions throughout South Africa, as well as in Swaziland, Botswana and Namibia, and listed on the AltX of the Johannesburg Stock Exchange (JSE) in 2007.

Revenue is generated through the manufacture, import and distribution of TV and video equipment-related products under the Ellies brand, and satellite and associated equipment under the ElSat brand. Megatron Federal is the company’s infrastructural power division, specialising in power generation, transmission and distribution.

The company also has a renewable energy division which offers solutions to home-owners and businesses. Other offerings include internet connectivity services and telecommunications infrastructure. The company has a JSE market cap of R360 million, with the live online stocks chart showing a huge decline in Ellies share price.

After historically benefiting from an explosion in television aerial technology and electrical equipment, Ellies latest available data reflects a difficult operating environment for the company.

In the 2015 financial year, the group recorded a loss of R333 million. This negative performance was driven by a number of factors, including Eskom’s withdrawal of its residential mass rollout programme, delay of the digital migration, severe liquidity constraints and higher interest charges. Numerous infrastructural projects started within a short time frame, which saw contract debtors increasing from R180 million to R420 million in one year. This all contributed to severe pressure on working capital and a reluctance to buy Ellies shares.

The industrial power division struggled, with management forced to close down most manufacturing plants within Megatron, reducing exposure to manufacturing in South Africa. This resulted in a once-off cost of R25 million. Stock in the consumer division was reduced by R100 million as a result of struggles to get consumers to buy products. Cost reduction initiatives saw the division trading positively, and Ellies is continuing to cut overheads and focus on new products that are ahead of the technology curve. This will include the development of OVHD decoders, video streaming products and WiFi offerings.

In the consumer goods division, the company is banking on digital migration to drive profits, as it has secured a large tender for the manufacture and supply of satellite dishes, terrestrial antennas and accessories for migration to digital TV from analogue.

Ellies share price dropped from a high of R9.83 cents in 2013 to 57 cents in 2016. Despite vigorous cost reduction initiatives, the company is continuing to report losses and seems to be struggling to map a profitable path forward. The current forecast looks grim for Ellies and investors who are brave enough to buy Ellies shares.

Technology

Hardware

Communications Equipment

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