Why rocketing Ellies shares defy disappointing results
The company breathes after debt deal, but still suffers
Ellies’s share price has risen 65% since the day before the electronics group reported its full-year results on July 28.
The manufacturer and distributor of consumer electronics products, such as television antennae and satellite dishes, posted disappointing results for the 12 months to April.
The results were weighed down by the infrastructure business, which was put under liquidation, and the continuing economic downturn, which affected the consumer segment.
Vunani Securities small-cap analyst Anthony Clark said the share price had spiked after the results release because the company had renegotiated its substantial debt with Standard Bank and had managed to restructure the business.
Ellies’s debt of up to R170m was extended to a term of five years, with a general short-term loan facility of R135m in place. The debt renegotiation had reduced Ellies’s financial stress.
"It is less likely to go bankrupt," Clark said.
However, he warned that it was still a risky business because the economic downturn was putting pressure on the consumer market.
The consumer unit maintained turnover of R133bn, although it felt the effect of the retail slowdown, said Clark. He would not recommend the stock as a buy.
Intellidex research analyst Phibion Makuwerere said Ellies was now "a dog of a stock" and it was difficult to see how it could "regain its former glamour".
The negative margins in its only viable unit, the consumer division, had to be turned round urgently, said Makuwerere.
"The top line remains difficult to grow in this environment of low consumer confidence."
The group’s outlook was poor, given SA’s weak economic outlook and constrained consumer spending, he said.
Ellies CEO Wayne Samson said the consumer unit was being restructured with the aim of bringing substantial savings.
On Thursday, Ellies’ shares had lost 3.45% to close at 28c.