I first wrote in Business Day on Ellies Holdings two years ago when the company had moved from the JSE Altx to be listed on the main board. I remarked that I liked company’s investment fundamentals for the long term. The company did not, however, meet the criteria for the either the High Yield or Private Investor portfolio whose tale I was telling in the newspaper.

But, at a share price then of R1,60, the shares were a glint in Jean’s and my eyes. The glint was sparkled by our personal experience of a few of its products.

Ellies describes itself, in part, as the largest manufacturer, wholesaler, importer and distributor in Southern Africa of television reception-related products, such as satellite equipment and antennae, as well as domestic electronic and industrial audio products.

A year ago, Ellies published a trading update on expectation of headline earnings per share for the financial year ended April 30 2011, and I reckoned it was time to revisit the company.
On June 29 2011, Ellies had published a positive trading update.

In my column I wrote: ‘The company expects headline earnings per share for the 2011 financial year to be between 18% and 23% higher those in 2010. The expected range is, therefore, between 30c and 32c.
‘The share is now trading a shade under R2. Based on this price, and taking median earnings of 31c, the market ratings are a price-earnings ratio of 6,5 and the earnings yield is 15,5%. If it declares a dividend of 20% of earnings, the projected dividend yield is 3,1%. These ratings are about the same as the historic ratings last August. The difference is that it’s been delivering growth at the bottom-line and the share price has moved by 25%. Looks like a sound long-term growth investment.’

About three weeks ago, Ellies published a revised trading update for the financial year ended April 30 2012. The directors wrote: ‘Ellies is now in a position to advise that it expects EPS and HEPS to be between 68% and 78% higher for the year ended 30 April 2012, compared to EPS and HEPS for the year ended 30 April 2011.’

(The year’s results are due to be published on July 23.)

In an earlier update towards the end of March, the expectation was a 40% year-on-year improvement, and that update moved the share price up from around R3 to close to R4. The revised update accelerated the share price and, as I write, it is trading around R5,30.

Ellies didn’t declare a dividend in the 2011 financial year but its HEPS were 31,42c a share. If this year HEPS were, say, 70% higher year-on-year, they will be around 54c. At a share price of R5,30, the guesstimated historic market ratings are a price-earnings ratio of about 10 and an earnings yield of 10%.

There may be a dividend sweetener this year but as the company is sweating its assets, it needs cash to meet market demand. The share price looks challenging but I feel Ellies should be able to maintain earnings growth of at least between 15% and 20% for the medium term. It’s still a glint in our eyes.

Ben Temkin