• Mustek has this week warned shareholders about a potential decrease in headline earnings per share and basic earnings per share.
• This is due to an impairment of its investment into Zaloserve (Sizwe IT Africa).
• The distributor is also struggling to move renewable energy equipment given that loadshedding has abated for a number of months now.

Next week Mustek will release its financial results for the year ending 30th June 2024 and it appears to be getting shareholders ready for bad news.

According to a trading statement issued on Wednesday morning, Mustek says its headline earnings per share are expected to be 70 to 80 percent lower than they were in the year ending 30th June 2023. In terms of monetary value, the shares could dip in value by between 75 and 122.5 cents.

Basic earnings per share are even worse of with earnings expected to be between 85 and 95 percent – or between 18.63 cents and 55.89 cents – lower than the previous year.

“The difference between headline earnings and basic earnings is due to an impairment of the investment in Zaloserve (Sizwe IT Africa), which has been classified as an asset held for sale as at 30 June 2024,” Mustek reported in a SENS announcement.

Sizwe IT Africa has become something of a needle for Mustek. Last year it uncovered some irregular spending at the firm and suspended employees.

“Zaloserve was negatively impacted by operational challenges and irregular expenditure incurred by employees of Zaloserve’s 100% held subsidiary, Sizwe Africa IT Group Proprietary Limited,” Mustek said.

That’s quite a few headaches for what IT Web describes as a company Mustek is a “minority shareholder” of.

No loadshedding proves challenging

In addition to the lower earnings per share, Mustek also highlighted that the last year was “tough economic conditions and cautious market sentiment leading up to the general elections in South Africa”. This sentiment has been mirrored by many local companies but Mustek seems to have another problem – stable electricity supply.

Last year, renewable energy products including solar panels, inverters and batteries were in high demand. Mustek was able to meet this demand and it drove a lot of growth for the company. Now however, South Africa hasn’t had loadshedding for over 168 days and as a result, the need to purchase alternatives has waned.

It’s also worth noting that for the most part, renewable energy is a once-off purchase. Given how dire loadshedding has been for the last four years, the businesses and households that were going to install renewable energy solutions have likely already done so and won’t need more equipment until something breaks or an upgrade is needed.

If a renewable energy equipment supplier is feeling the effects of a stable power grid, we can only imagine the havoc that is playing out in businesses that were created exclusively to deal with the power crisis.

Not accounting for a potential alleviation of loadshedding, Mustek says it’s now sitting with surplus stock and the state of the economy as well as high interest rates make it tough to move that stock.

Shareholders can expect Mustek to publish its financial results on 19th September and give this trading update, it may be best to temper expectations.