Ellies finds itself in a curious position \u2014 its share price plummeted to below its planned rights offer price, which means shareholders are better off not exercising their rights.<\/p>\n
In February, Ellies announced its plan to acquire a 100% interest in the alternative energy company Bundu Power.<\/p>\n
Ellies announced that it would pay R202.6 million in total for the company \u2014 over four times its current market cap.<\/p>\n
The acquisition forms part of Ellies\u2019 plans to move the company into the smart infrastructure space, focusing on alternative energy solutions.<\/p>\n
Acquiring Bundu Power will be a significant step for Ellies to grow its presence in the alternative energy market and bolster its finances.<\/p>\n
Ellies has been struggling in recent years. Ellies reported a profit in 2019 and traded at a price-to-earnings (P\/E) multiple of 1.14 times at the time.<\/p>\n
However, since then, the company has raked in losses. Ellies reported a net loss of R85 million in its latest financial results \u2014 almost twice its market cap of R48 million.<\/p>\n
Bundu Power, in comparison, is profitable and has grown its revenue and profit amidst South Africa\u2019s electricity problems.<\/p>\n
Buying Bundu Power does not come cheap. Ellies is set to acquire the company at a P\/E multiple of 18 times.<\/p>\n
Ellies plans to finance its Bundu Power acquisition with a rights offer. It would allow shareholders to purchase 2.13 additional Ellies shares at 7 cents per share for each share held.<\/p>\n
At the time of the rights offer announcement, Ellies\u2019 share price was trading at 11 cents, translating to a rights offer discount of 36%.<\/p>\n
At this discount, shareholders not exercising their rights would be diluted and lose 25% of their initial share value if it traded at the breakeven post-rights share price.<\/p>\n
However, since the rights offer was announced, Ellies\u2019 share price has seen a dramatic fall to its lowest level of 5 cents per share.<\/p>\n
This created a very rare case where the share price was lower than the discounted rights offer price.<\/p>\n
Therefore, instead of being diluted for not exercising their rights offers, shareholders\u2019 share price would be concentrated.<\/p>\n
At a share price of 6 cents per share, where it has been trading in recent weeks, shareholders who do not exercise their rights would make a guaranteed return of 17% at the post-rights price of 7 cents per share.<\/p>\n
As the rights offer is fully underwritten, Ellies shareholders are guaranteed to gain a return from the rights offer by not exercising their rights.<\/p>\n
The rights offer has, therefore, completely lost its appeal. Instead of incentivising investors to contribute more capital, it incentivises them to withhold capital.<\/p>\n
This article was first published by Daily Investor<\/a><\/strong> and is republished with permission.<\/em><\/p>\n Ellies finds itself in a curious position \u2014 its share price plummeted to below its planned rights offer price.<\/p>\n","protected":false},"author":341111,"featured_media":427524,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[80335],"tags":[18911,35],"class_list":["post-508290","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing","tag-ellies","tag-headline"],"_links":{"self":[{"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/posts\/508290"}],"collection":[{"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/users\/341111"}],"replies":[{"embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/comments?post=508290"}],"version-history":[{"count":1,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/posts\/508290\/revisions"}],"predecessor-version":[{"id":508294,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/posts\/508290\/revisions\/508294"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/media\/427524"}],"wp:attachment":[{"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/media?parent=508290"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/categories?post=508290"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/tags?post=508290"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Now read:\u00a0Competition Commission approves Ellies acquisition of Bundu Power<\/a><\/h3>\n","protected":false},"excerpt":{"rendered":"