10% bounce for Ellies price as CEO buys shares, kills dumping rumours

Mr Market got a wake-up call today after Wayne Samson came through to the CNBC Africa studio to put the Ellies rumours to bed. At the time the interview began we the share price had lost another 2% from Tuesday’s close to a fresh low of 580c. By the time he moved away from the the cameras, the price had recovered to 615c. By the day’s close of trading it was back at 645c, a 10% turnaround from its low point. A delay in the distribution of the SENS statement meant Samson was unable to play his trump card during the interview: that he had personally bought a further 100 000 shares. As you’ll read from the interview, the management team is irked by the share price slide that followed the sale by founder Elliott Salkow of 200 000 shares, a fraction of his total shareholding. When we called to ask, Samson was only too happy to give his side of the story. Prospects for further price improvements look good. – AH  

To watch the video of our interview today on CNBC’s Power Lunch click here

ALEC HOGG: Shares in the electronics manufacturer and distributor, Ellies, fell 5% this week to a 52 week low of R6.17.  They are down again this morning to below R6.00 a share and in the last three months, are now 27% lower.  Chief Executive, Wayne Samson, is with us in the studio.  Not least, Wayne, because the last time we spoke when you left here I was all excited about Ellies and almost bought some shares in your Company.  To a degree, I am glad I didn’t because the share price just seems to be going in one direction.  What’s going on?

WAYNE SAMSON: I actually don’t know.  We are very upset and very concerned.  If I may be blunt, I think a lot of it has been to do with a certain amount of media hype, which has been really misconstrued.  I won’t even say what sources but I hear on radio and on Tweets that Directors are continuously selling shares, trying to go out.  What do they know that the market doesn’t know?  In the last three months there has been one Director’s dealings of 200 000 shares, which constitutes 0.001% of the Director’s Holdings in Ellies. So how this constitutes this bailing out, I don’t actually understand.  I’m at a loss for words. I went back to the share trading since we came into an open period at the end-July and we are still at a net 200 000 shares sold.  Where does this hype come from?  How does it get reported so falsely? I think that is what has stirred a bit of panic in the market.

ALEC HOGG: So there might be a short seller out there that is infiltrating the news channels?

WAYNE SAMSON: Yes, listen, that is what I believe.  I think, as Ellies, we’ve taken a policy over many years to be open and honest with our investors.  At our results presentation in July, I did turn around to all the investors and say, “Listen, the first six months would be a hard act to follow after the first six months last year”.  The first six months of our 2012, we came out with 102% increase in profits, which is a hard thing to beat but that we are on the right track at least and at Ellies we are still confident on the growth for the year.

ALEC HOGG: Maybe we can just talk a little about the Open View TV because you were very bullish about that the last time you were in the studio.  It’s a few weeks further, do you have more clarity for us?

WAYNE SAMSON: Well it launched last week so it is still very early. I don’t think the likes of Multi-Choice and everyone else are going to lie down.  It is going to be a bun fight but you know the way I see it is there are two different markets.  You’ve got your higher LSM, your subscriber market, and you’ve got a ‘free to air’ market.  If you look at the statistics, I think there is roundabout eleven million TV viewing households.  I think Multi-Choice has around about three million, which means you’ve got eight million households that are watching ‘Free to View’.  With a digital migration coming through they’ve now got an option of going DTT or going on the OVHD bouquet, which is there. It is a once off purchase and there is no subscription thereafter.  So, it is an option then that I really believe will get traction in the long run.

ELI jumps to R6.15 after CEO's interview on CNBC Power lunch with @alechogg

— Tebogo Leeuw (@Thiza4u) October 23, 2013

ALEC HOGG: You should win both ways because if Multi-Choice fights with Open View and reduces prices still further, that means more satellite installations for you?

WAYNE SAMSON: One hundred percent but I don’t even think there’s an issue of reducing prices, I think.  OVHD is going out between R1700 and R1900 retail in the market, so I don’t even think…

ALEC HOGG: That’s for the installation.

WAYNE SAMSON: For the installation part.

ALEC HOGG: But if DSTV brought down their bouquets to say R10, surely that would open..

WAYNE SAMSON: They’ve already gone to R20, for the lowest bouquet, so it is there.  It is just another option.  I believe, as I’ve said to you in the past, I think in the next year the whole TV viewing environment in the country is going to be changing dramatically. There’s going to be more players. Only two weeks ago, Sentech announced they will want to go with their new Open View Package.  So, there’s a lot  more players coming into the market where we saw yesterday, even though there’s a court interdict, Top TV is looking at re-launching.  So, the whole environment is going to change and, as the largest supplier and installation facilitator in the country, I would like to believe that we are part of it.  So, Ellies for the future, we are still very bullish.  That is why I’m saying that we are very concerned about what is actually happening to the share price.  The fundamentals of the company really haven’t changed.  It is nothing that I haven’t gone out and told the public about and I’m not hiding anything from the public.  I mean I’ve had some interesting emails from a UK company saying, “Is there a pending Court Case we don’t know about?”  There isn’t any of that. There’s been so much speculation put out there.  So, I thought that’s why it was good to just come in here and just kind of kill off all the speculation.

ALEC HOGG: Indeed; the R30m that you held back, by not paying a dividend this year; was that, with hindsight, a smart decision because often when you don’t pay a dividend people see things that may not be there.

WAYNE SAMSON: I wouldn’t say it is smart or not smart.  I think you’ve got to follow JSE Regulations and  when you are going to issue a dividend you’ve got to go and put through your cash forecast etcetera.  We’ve invested a fair amount into the OVHD, so where we’ve invested that money in the OVHD you can’t then take borrowings to pay out a dividend.  So, it is just following what the JSE protocol is and what the allowance is.  It is silly for us, as a company, to try and make an application at the JSE, knowing that there’s a chance of rejection coming back.  We’d rather have invested into our stock.  If I am not mistaken our return on investment is 30%, so if I can go to our shareholders and say, “Let me take this money, invest it into a project, and if I can give you 30% back”, that’s worth more than a few cents in dividend.

ALEC HOGG: Are you likely to pay a dividend though in your next reporting period?

WAYNE SAMSON: We always look at paying dividends but we are very scared to put a dividend policy out because the company has been on such a growth curve.  I mean if you have a look in 2007, I think, before we listed we turned over a R576m now to R2bn in a five-year period. So with that kind of growth we are not sure what the future investment will be.  Once we’ve got a steady growth path coming through and it is more consistent, say 15% to 20%, then, yes, we can put a firm dividend policy in.  As shareholders – and directors own 45% of the company – believe me we would also like to see a dividend coming through. But we are trying to be prudent and do what is in the best interest of the company and all shareholders.

ALEC HOGG: It is just an interesting phase investors are going through with the market at the moment.  You’ll pay a 20 PE, for instance, for an SAB Miller, which is growing at 5%, but you know that that 5% is solid. And dividends sometimes come into the calculation for investors in that kind of an environment.  But, Wayne, looking at your share price: you are down to under R2bn in market cap now, so it’s been quite a hit that you’ve taken.  What strategy do you employ when you are under this kind of attack?

WAYNE SAMSON: The only thing that you can really do, honestly, is to come onto a show like Power Lunch and give an honest answer.  We can’t manipulate share price. We can’t trade up and down. At the end of the day our share price is what the shareholders are doing, buying and selling. The only thing we can do is to put honest information out there for them to make their decisions on.

If I was an investor, I would definitely be buying Ellies, I think it is the cheapest we will see it in a long time.

ALEC HOGG: What about your Chairman, Elliott Salkow, the founder? He was the one who sparked it all when he sold those shares.  Should he not, he’s got the money, should he not just come back in and buy another 200 000 and put you into a net position?

WAYNE SAMSON: Well, the SENS announcement should be out now. You should see some dealings with directors because we find it very cheap, but with Ellie Salkow as well, I mean, you saw some trades in the past, there with Berrywood.  Just to put it in perspective, Berrywood was a BEE Consortium that came in at listing.  They were defaulting, so their shares were going to be dumped on the market.  Ellie took them up so it didn’t get dumped on the market.  He just tried to recoup what he put in to stop that dumping in the markets.  So, you know, that’s the story but the part that is very difficult, as a listed company – it is something we are learning I don’t think we will ever come to grips with it – is that directors of companies are human beings as well, you know.  They’ve got bonds.  They’ve got expenses.  They’ve got everything else, so I don’t think it is reasonable for a director to be told to hold forever and a day, you know, with the growth of a company.  I would also like to realise some wealth or profit going through. I think you would be concerned if a director went and dumped 50% or 60% or more of their shares. But that’s not what the case is here.

ALEC HOGG: Especially if you are not paying dividends; that’s one of the theories that Warren Buffett was talking about at his AGM this year. Rather than pay dividends he suggests that people who need the incomes sell a small percentage of their shares every year and, in that way, because the share price will continue going higher, they actually have a better after tax return.

WAYNE SAMSON: Sure.

ALEC HOGG: Wayne, do you have any idea on who is selling shares, to push the price down?

WAYNE SAMSON: It’s been across the board. I think the biggest panic I’m seeing – because I get a day-to-day, week-by-week trade – we’ve got a lot of private investors that are on the internet, buying and trading. From what I can see, the vast majority of the trades in the market are the smaller investors and, you know, they are the ones that are most influenced by media report and hype etcetera.  And I do see one or two institutions that are buying up because it is cheap and I think that’s a clever move to do.