GOOD­WILL GOOD ENOUGH?

Finweek English Edition - - INVESTMENT -

EOH has emerged with an­other strong set of re­sults with HEPS up 33.9% and around a third of rev­enue growth fu­elled by new ac­qui­si­tions, with some t wo thirds com­ing from ex­ist­ing op­er­a­tions. Growth both or­gan­i­cally and through ac­qui­si­tions continues to work with the com­pany, en­sur­ing that all ac­qui­si­tions are small­ish so as to re­duce any risk. Judg­ing by the bal­ance sheet, there is very lit­tle share­holder eq­uity, typ­i­cal of IT com­pa­nies as most of the value is in­tel­lec­tual property rather than hard as­sets. That said, the com­pany does have a monster amount of good­will – al­most R1.7bn with the eq­uity at only R2.2bn. Again, this is not a sur­prise due to the na­ture of both the busi­ness and the growth strat­egy, but good­will al­ways makes me pause. Good­will can be re­duced via a write-down, which is a non-cash is­sue apart from the money that was spent build­ing it.

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