S.Africa: The Blunder that cost a Jewish Owned company millions

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Load-shedding has presented Ellies with a tremendous opportunity to increase its revenue and profit significantly, but it failed to capitalise on Eskom’s failure to provide reliable power effectively.

Ellies was established in 1979 by Ellie Salkow as a supplier and installer of television aerials and later satellite dishes and decoders.

A decade ago, Ellies was flying high with strong revenue and earnings growth, a new business venture through Openview HD.

Ellies also expected to be a key player in the manufacturing of set-top boxes for the looming migration to digital terrestrial television (DTT).

Ellies’ share price rose to over R9.50 on the back of the positive outlook, making it one of the best performers on the JSE in 2012.

However, the Department of Communications bungled digital migration, and Ellies’ outlook started to change.

The company had to look elsewhere for growth, and it morphed into a wholesaler, importer, and distributor of LED lighting, electrical and electronic products, and solar solutions.

It was not enough to deliver on its promise. Ellies’ revenue and profit started to decline, and its earnings took a knock.

The market lost trust in the company, and its share price plummeted by 99% — from R9.56 in May 2013 to 4c in February 2020.

Since hitting lows two years ago, the share price has recovered somewhat thanks to a Broad-Based Black Economic Empowerment (B-BBEE) deal.

The deal, valued at R18.5 million, saw Imvula take up just over 185 million shares in Ellies, equating to a 23% shareholding. It improved Ellies’ BEE rating to level 4.

Another reason for optimism among investors is increased sales of Ellies’ solar and inverter products.

Ellies CEO Shaun Prithivirajh said load-shedding has been good for business, especially with consumers and businesses opting for batteries and inverters instead of generators.

Ellies is well-positioned — but is missing a big opportunity

The pressure on South Africa’s electricity grid will continue, and Ellies is well-positioned to take advantage of the growing demand for more reliable energy sources.

Ellies has a wide range of backup power products — including solar solutions and inverters — to serve residential and commercial clients.

The high price of petrol and diesel has also played into Ellies’ hands, making its battery backup and inverter trollies attractive alternatives to generators.

With near-perfect conditions for Ellies’ alternative energy products, it raises the question of why the company is not showing incredible growth.

The reasons include a conservative commercial model and poor marketing.

Ellies is a household name in South Africa and should have aggressively promoted its power backup solutions over the last three years.

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.

Instead, Ellies has done virtually no marketing.

The lack of marketing has opened the door to much smaller companies without much brand recognition to capture a significant market share.

Instead of Makro, Game, Builders, and other retailers aggressively punting Ellies’ energy products, they are promoting generators and rechargeable lamps.

Another problem is that Ellies products are often out of stock, pointing to a conservative commercial model.

In July, for example, when thousands of people were looking for load-shedding products, Ellies’ inverters and other products were sold out at Game, Makro, Leroy Merlin and other stores.

During the height of demand, none of the big brick-and-mortar or online retailers had stock of Ellies’ inverter trolleys.

During this period, competitors have sold truckloads of alternative energy products and recorded strong revenue growth in their energy divisions.

Ellies lost millions in sales because its inventory levels could not meet growing demand.

The result of the poor planning and lack of marketing is clearly visible in the company’s financial results.

On 22 July 2022, Ellies issued a warning to shareholders that it expects to report a headline loss of between 6.49 and 7.77 cents per share.

Ellies has many excuses for its poor performance, including Covid-19, the unrest during July 2021, South Africa’s weak economy, unemployment, and even the petrol price.

However, Eskom presented it with a tremendous opportunity to significantly increase sales of its alternative energy products. It failed to fully capitalise on this opportunity.

Ellies still has an opportunity to capitalise on Eskom’s problems, but it is now facing increased competition.

Large retailers, like Makro, have started offering customers fully installed solar power systems because of the increased demand for backup power solutions.

Many new players with deep pockets are also starting to offer energy solutions to homes and businesses.

One of these is Stage Zero, which forms part of the Vivica group backed by RMB, Metier, and MIC Capital Partners.

For Ellies to effectively capitalise on load-shedding, it will have to compete against a growing number of players.

It will require aggressive marketing and taking commercial risks, like increasing inventory volumes.

However, it is unclear whether Ellies and Prithivirajh have the risk appetite to bet big.

Source: https://mybroadband.co.za/news/investing/454412-ellies-blunder-that-cost-it-millions.html

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