Don’t miss the Ellies boat – a bet on HCI/Remgro’s free satellite TV challenge to Naspers

“Mr Market” was at it again when Ellies released its financial results for the year to end April. A decision by its board to pass the annual dividend was greeted with immediate dismal – the share price getting knocked back 4% in early trading. Those who had the foresight to watch my interview with CEO Wayne Samson on CNBC Power Lunch would have seen this as a juicy opportunity. Wayne explained very clearly that around R30m that would have been paid out was kept, rather, to invest in the free satellite TV service to be launched in October by the HCI/Remgro partnership. As he was leaving the studio he added that he felt within four years the challenger would build a base the size of Naspers’ existing DSTV footprint. That’s a lot of TV aerials. And a big profit booster for Ellies, which dominates this market. A table of Ellies’s key financial numbers is below the transcript.

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ALEC HOGG:  Ellies, one of the widest held shares amongst retail investors on the Johannesburg Stock Exchange came out with a 36% boom in its headline earnings per share (for the year to end April 2013). But, as Lindsay (Williams) and I were talking about off air, it decided to pass its dividend. Wayne Samson the Chief Executive of Ellies is with us. The share price is down 3% at the moment, started 4% lower to begin with. The dividend passing has not been well met.

WAYNE SAMSON : Correct. There was a reason for it. In the commentary we stated that there is a new satellite provider coming to the market OVHD which is a free-to-view offering of 15 plus channels. Ellies is going to be a major distributor of the hardware. So it was a matter of having the boxes spec-ed and having the boxes manufactured for delivery (so) that can we can have them in the stores by October. So it was the utilising of cash for another growth area that we see, we believe is going to be very big and have a lot of longevity.

ALEC HOGG: What did your dividend cost you last year?

WAYNE SAMSON: 10c dividend, R30 million.

ALEC HOGG: So you’ll take the R30m and put it into the new opportunity.

WAYNE SAMSON: We put it into the new opportunity.  I think we put more than that into the new opportunity, but we believe it’s going to change the viewing environment in the country.


WAYNE SAMSON: It’s a very different offering in that it’s free to view. So you are basically buying your equipment – your receiver and your installation if necessary – and that is your only cost.  Thereafter you have got 15 plus channels , 5 of them are going to be in full HD 1080. The only revenue that the channel gets is on its advertising. So as the end user you are not paying any subscription and this is appealing to the lower and middle LSM’s . I don’t think it’s bumping heads with the likes of DSTV because it’s appealing to a totally different market.

ALEC HOGG: Wayne you have seen all of this before. It will be interesting to explore a bit further. You have been with Ellies, I think this

Ellies founder, the media shy executive chairman Elliot Salkow
Ellies founder, the media shy executive chairman Elliot Salkow

is your 24th year now, your Chairman Elliot Salkow started the business in 1979. He listed it here on the stock market in 2007 but long before you listed the company you had ElSat which was a satellite distributor, the market leader. Is the opportunity for you to have another go at a new market arena?

WAYNE SAMSON: Yes, giving ElSat another avenue. You know the talk in the market. There are a few new happenings in the market. I believe when we are sitting here this time next year, I believe the viewing environment in South Africa will be significantly different. From the DSTVs to OVHDs, there are talks of others coming out, DTT hopefully would have rolled out.

ALEC HOGG: You used an anagram that not too many people understand. You know all about DTT because when we spoke here in 2007 you were talking about DTT or digital terrestrial television. It is now 2013 and we still haven’t seen it. What makes you confident that it is going to happen this time?

WAYNE SAMSON: The whisperings in the corridors say that the new Minister (of Communications) is very eager to get things going. Listen, the world is not waiting for South Africa. So come 2015, protection on analogue signals ceases and the country needs to be ready.  I don’t think we can delay any more. I don’t think we can hold it up. It needs to happen. Ellies as a company is ready. We have probably invested in excess of R50 million in infrastructure machinery and stock for the DTT rollout and I think we ideally positioned.  I think we are one of the only companies that can produce a 100% local content product.

ALEC HOGG: Just take us through the transformation that might happen.

WAYNE SAMSON: In ElSat in its own silo; the terrestrials in its own silo; and energy efficiency in its own silo. The energy efficiency side slowly moving that way and funny enough between a consumer in the infrastructure side we are seeing a lot of synergies happening at the moment with energy efficiency. Megatron division is involved with the IPP’s having the big inverter that we manufacture for SMA for the IPP project we just bought a water purification….

ALEC HOGG: You love your anagrams.

WAYNE SAMSON: Independent Power Producers, and we just bought a water purification company so we have got our eye on seeing where things might go in the future. Now we hear adverts on the radio that water is the next major event worldwide. So that is where we are keeping our eye on and we are looking for these areas in the market where we see growth in the future.

ALEC HOGG: You are very entrepreneurial. Ellies always has been.  How many of these pitches that you swing at actually go past you. How many that you swing at aren’t successful?

WAYNE SAMSON: We are quite happy if we are on a 7 out of 10 ratio. We have got a philosophy: if you aren’t batting you can’t hit sixes. If we are going to try something we are going to put all our effort into it. Some of them don’t work out.

ALEC HOGG: You have good years and you have bad years.

WAYNE SAMSON: We have good years and bad years

ALEC HOGG: This was a good year. At the cash operating level you had a R200m turnaround. R153m in cash that came into the business. Last year there was a 43 million outflow, what caused that?

WAYNE SAMSON:  it was just timing issues really, it is when it comes to stock and revenues coming in. I think the important thing is to

Amazing what you can get on the Internet - who would have thought that the rugby loyalties of Joburger Wayne Samson  lie elsewhere?
Amazing what you can get on the Internet – who would have thought that the rugby loyalties of Joburger Wayne Samson lie elsewhere?

look at since we listed in 2007 is that we have shown  a growth of 20% year on year compound. So we are consistent with our results. We are consistent with our profits. People like yourself, you put pressure on us and we are going to have to deliver  in the next six months again. So we look at constantly moving targets. So new areas of business we believe in today with consumer spending down a little bit. We have got to look at new avenues and new potential growth areas.

ALEC HOGG: We have not touched on the energy side yet, perhaps we can go there, you have got a , is it green shop in a shop.

WAYNE SAMSON: We have a shop within a shop within Massbuild and we’re busy rolling out other ones. What it does is gives you a destination, that when you walk into the likes of a Builder’s Warehouse there is an energy efficient destination where you can ask questions about lighting; about PV; about anything that you want and get the right professional advice. How much you are going to be saving on your electricity bill, what your outlets going to be, what your payback periods and so we give this kind of information to the consumer because we believe the consumer is being confused before then.

ALEC HOGG:  So you educating people to save themselves money?


ALEC HOGG: And how uneducated are we as South African consumers?

WAYNE SAMSON: We are pretty uneducated especially when it comes to new technologies and it has been extremely successful in the Green stores.We are going to look at rolling this out in what we call the Red stores. Hopefully we will come up with a thing called Ellies Connect whereby you will have a destination to go and have a look at all your viewing options . So whether you want to choose a DSTV, OVHD etc then we can help you in your choice and tell you what you can look forward to.

ALEC HOGG: Wayne, you are coming off a much higher base now after 36% growth in headline earnings per share.  Are you confident that the 20% number you used before is likely to be repeated next year?

WAYNE SAMSON: I think on a year on year figure we are quite confident that it can be repeated. We had a tall order to follow having that Eskom RNR project. We had to follow up on it and Megatron has been a bit lumpy when it comes to the starts and ends of projects . But the forecast over a year is pretty bullish.




Growth %

Revenue (Rm)

1 711

1 996






EBITDA margin



Pretax profit (Rm)




Attributable (Rm)




Shareholders’ funds (Rm)




Total assets (Rm)

1 346

1 692


Dividend per share ©



Tangible NAV per share ©




Headline EPS ©




Cash from op activities (Rm)



Op cash flow per share ©



Issued shares (millions)



Share price (23 July) ©




Market cap (Rm)

1 609

2 337


Price to book



Earnings yield



Dividend yield








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