Dramatic turnaround in EOH’s share price |
Plan to sell R1bn of non-core assets cheered
EOH HOLDINGS’ share price rose by 55.23 percent yesterday as the market cheered the plan by the JSE-listed technology services group to raise R1 billion by selling non-core assets to reduce debt in the next 12 months.
EOH also said that it would reorganise its operational structure into four distinct operating units to allow for “leaner and more agile core businesses with separate capital and governance structures”.
The share price closed at R20.18 yesterday.
For the six months to end January, EOH yesterday reported a loss of R3.3 billion compared to last year’s profit of R67.5 million.
Revenue from continuing operations was flat at R8.43bn, while the group reported a headline loss a share of 973 cents, compared to last year’s headline earnings per share of 314c.
Chief executive Stephen van Coller said the group had put behind the events of the past few months and was now concentrating on a complete turnaround of the business.
“The period under review marks the dawn of a new era for EOH. The last six months, including events post-period end, have been extremely challenging for the group.
“However, we want to raise around R1bn by selling non-core assets in the next 12 months after we have completed a strategic review of the business and that will leave us with our core assets,” Van Coller said.
Some of the challenges the group has had to deal with in the last six months include ongoing governance allegations, compounded by Microsoft cancelling its Channel Partner Agreement with its subsidiary EOH Mthombo.
“This has accelerated shareholder value destruction and raised further questions about historic governance practices,” Van Coller added.
EOH made strides in addressing corporate governance issues.
The group said: “The EOH leadership team, with assistance from legal advisers, ENSafrica, are well progressed in tightening the group’s governance structures and in implementing a new, streamlined bid approval process.
“A variety of governance tools, processes and initiatives are being implemented, aimed at ensuring that any instances of wrongdoing within the group are identified and removed. ENSafrica has been spearheading the current investigations which are expected to be concluded by May 31, 2019.
“As part of this process, obligations to report irregularities under various acts will be fulfilled as required.”
EOH said it was strengthening its board to ensure that it was fully King IV compliant.
“At a holding company level these include the appointment of two highly qualified and experienced independent non-executive board members, Ismail Mamoojee and Jesmane Boggenpoel.
“Asher Bohbot, founder, non-executive chairperson and chief executive for 19 years, and Rob Sporen, founding member of EOH and non-executive director, have resigned, to assist with King Code Compliance in terms of director independence. A process to appoint an independent chairperson and further independent board members is under way at both group and operational unit level,” it said.
Peter Takaendesa, a portfolio manager at Mergence Investment Managers, said EOH numbers were clouded by many asset write-downs and potentially non-recurring operational costs.
“It is still not clear what is the business’s true and sustainable operating profitability, given ongoing investigations and implications on key supplier relationships, as evidenced by the recent termination of their relationship with Microsoft.
“However, the strong share price recovery today (Tuesday) is coming after a sharp decline over the past year and investors are likely taking comfort from the announced intention to sell assets and reduce debt. This is important and preferred by investors as some may have been concerned that EOH was going to end up issuing dilutive new shares to reduce its debt.”
Takaendesa added that the sustainability of the share price recovery was dependent on the successful disposal of those assets, improved cash generation in the business and no other major supplier terminating its relationship with EOH.
Going forward Takaendesa said the EOH board had done well to appoint new executives and improve the independence of the board, but legacy issues were likely to require more attention to resolve over the mid-term.