GOODWILL GOOD ENOUGH?
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.