Due to the decline of its satellite TV and installation business, Ellies aims to profit from a surge in demand in solar products from households and businesses as power cuts become a permanent feature.
Ellies, which imports, manufactures and sells electronic equipment such as aerials and power trolleys, is exploring the possibility of new business models for its solar products, offering financing terms that give customers years to pay, making it more affordable and helping to attract more customers.
The company has struggled to remain profitable in recent years as consumers cancel their cable and satellite television subscriptions in favour of online video streaming. A move into alternative power is meant to help offset the decline.
With electricity out for as much as 10 hours a day during the dreaded Stage 6 load-shedding, now a common occurrence, demand for generators, solar panels, batteries, power banks and other related products has gone through the roof.
But as prohibitively high costs to go off-the-grid with solar or at least power a typical family home can quickly run over R100,000, such systems remain out of reach for many cash-strapped South Africans. Energy players have thus started offering new funding models such as renting, leasing and three- to five-year payback terms to customers, making the technology more accessible.
Competing firms such as Wetility, gosolr and WiSolar offer such services, while big banks now offer special loans to customers for solar and alternative power systems.
This is the market that Ellies is hoping to get into, CFO Guy Moretti told Business Day.
Cash cheapest
He said the group is also working on a model “which very cleverly brings a couple of savings together into the equation and allows for solutions to be a lot more cost effective for the end consumer”.
“You typically see that the cheapest way to do this [buying a solar system] is in cash and the next cheapest way is to pay it off like you would your car. Typically, the more expensive way to do this is to rent or lease it.
“This is something incredibly important to solve to get to critical mass because it doesn’t help to keep people out of the affordability loop by making a price tag that’s so high, or bringing it down but having a ridiculous monthly rate.”
It’s a game of trade-offs, Moretti said.
“All solar does vs Eskom is that you’re buying 10 or 15 years in advance. When you pay your Eskom bill, it’s the same principle. They put up a plant and we pay them monthly. So it’s about unlocking that key to get the consumer who doesn’t have the ability to pay one lump sum.
“This is an area that we’re very focused on but we don’t our product out in market yet.”
The comes as Ellies announced a deal this week to buy out Bundu Power, which specialises in generators and solar systems, in a R202.6m deal. Funding the acquisition is likely to be through a combination of debt and a rights issue.
The group’s most recent acquisition was the R180m deal for power generation and distribution equipment supplier Megatron Federal in 2008.
Lack of liquidity
While demand for alternative power products are abundant in SA, a lack of liquidity has kept Ellies from fully capitalising on the opportunities.
As the management appears confident about its move into alternative energy products, Anthony Clark, independent analyst at Small Talk Daily Research, is less hopeful.
Clark, who has been watching the company since its listing on the JSE in 2007, said it has gone through a number of turnaround strategies, but to no avail.
The company had previously attempted to capitalise on load-shedding when it first reared its head about a decade ago. It had brought in large stocks of generators for sale that ended up going unsold when Eskom “fixed itself”, resulting in impairments and write-offs.
“While I will give the new CEO — he’s a decent guy — a little bit of credit for reinvigorating the company, let’s not forget this is a company that is a microcap that has no institutional shareholders, which means his ability to try to raise money in a rights issue is basically zero. If I had my way, Ellies would probably have a share consolidation — though that hardly ever works — and hopefully try to find a friendly backer or partner to buy into the business.”
He said as a stand-alone microcap company taking on a new industry, its track record regarding past transactions such as the failed Megatron Federal venture does not bode well for shareholders.
“I’m not [just] tearing [into] the company given its past, but ... [it] has been a penny stock for years.”
He said the group has had a succession of strategic initiatives to take the company into varying directions, “but they’ve got no money and once again, they’re changing their minds as to where they think the company can actually go.”
In all this, Ellies has to compete with cheap imports from countries such as China.
“I am not that confident that they can pull this off. So if this thing doesn’t work, I can see Ellies imploding. If it does work, all it does is it just kicks the can down the road. They still have debt. They still have a very indifferent structure.”
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.