At a quick glance Ellies delivered another pleasing set of results today, with headline earnings of 12.1c a share – 30% up on the previous six months (11.7c). Shareholders’ funds increased by R31m to R548m, from 170.5c to 180.5c a share..  Management sounds upbeat too with regard to continued organic growth, current ventures – including its renewable energy sector products – and new opportunities – including internet satellite connectivity. It also believes the forthcoming migration to Digital Terrestrial Television will materially benefit the group.

Nevertheless there are some worrying aspects to the balance sheet, not the least of which is the intangibles figure of R225m on net total assets of R448m. It means that at around 220c the company is currently trading at twice its tangible value and at some point the impairment of those intangibles (which always seems inevitable) must negatively impact the share price. The cash situation is worsening too. Although Ellies reported cash inflows from operations of R14.7m, that’s half the previous six months figure and  nearly two-thirds the previous first-half figure of R35.2m. Whereas the net decrease in cash of almost R20m has raised bank borrowing above R33m.

The lack of funds means that Ellies will probably have to carry on funding its ambitions through the issue of new shares – following the issue of 57m new shares in the last 18 months (246.6m to 303.5m).

Investors won’t mind as long as earnings and asset values per share, and above all the share price, keep rising.

On that score, Ellies is now trading 50% above the low it reached in August last year (142c). It’s transfer to the Main Board in November probably helped (it’s dipped in price since then) but for those who are not worried about book value, the share doesn’t look expensive (on a p:e of 8).

Another plus: directors were consistent buyers throughout the whole of last year. And unless they have a change of heart are likely to provide support if, for some reason, the Ellies share price should head south.