Will the long-run­ning bull get a new breath?

A nice bounce re­cently might in­di­cate that the EOH share price is ready to leave the lack­lus­tre per­for­mance of the past year be­hind.

Finweek English Edition - - MARKETPLACE - Editorial@fin­week.co.za Mox­ima Gama has been rated as one of the top five tech­ni­cal an­a­lysts in South Africa. She has been a tech­ni­cal an­a­lyst for 10 years, work­ing for BJM, Noah Fi­nan­cial In­no­va­tion and for Stan­dard Bank as part of the re­search team in t

eOHis South Africa’s largest ICT ser­vices provider, of­fer­ing a range of ser­vices cen­tred around three clus­ters: tech­nol­ogy, con­sult­ing and out­sourc­ing (the lat­ter fo­cuses on both tech­nol­ogy and busi­ness process out­sourc­ing). Listed on the JSE in 1998, EOH cur­rently em­ploys more than 6 000 staff and has 120 points of pres­ence in SA and else­where on the con­ti­nent, ser­vic­ing cus­tomers in a range of in­dus­tries in­clud­ing fi­nan­cial ser­vices, telecom­mu­ni­ca­tions, man­u­fac­tur­ing and lo­gis­tics, the public sec­tor, min­ing and re­tail.

While its share price has shown slug­gish per­for­mance over the past year, it jumped 7% in in­tra­day trade fol­low­ing the re­lease of the group’s lat­est trad­ing state­ment in Fe­bru­ary, in which it an­nounced an ex­pected in­crease of up to 25% in earn­ings and head­line earn­ings per share (HEPS) for the in­terim pe­riod. It’s re­sults, re­leased on 15 March, con­firmed an in­crease of 23% in earn­ings per share, and 22% in HEPS.

EOH’s suc­cess­ful track record is at­trib­ut­able to a com­bi­na­tion of strong or­ganic growth and ac­qui­si­tions. In Fe­bru­ary it an­nounced the ac­qui­si­tion of black-owned Cor­na­s­tone Group for an undis­closed amount, sub­ject to reg­u­la­tory ap­provals. Cor­na­s­tone pro­vides niche sup­port ser­vices to telecom­mu­ni­ca­tions net­work op­er­a­tors in ar­eas such as billing and call cen­tre op­er­a­tions, Tech­cen­tral re­ported. The group has about 100 en­ter­prise cus­tomers and an­nual rev­enue of over R300m. In 2016 it paid R194m to ac­quire Ap­tron­ics, which pro­vides data cen­tre and com­put­ing ser­vices.

In Jan­uary EOH is­sued a state­ment to high­light its grow­ing e-gov­ern­ment so­lu­tions foot­print, af­ter the can­cel­la­tion of a ma­jor gov­ern­ment broad­band ten­der in SA in 2016 weighed on its share price. EOH said it has been ex­pand­ing its foot­print in the Mid­dle East through the ac­qui­si­tion of 50% in­ter­est in a num­ber of com­pa­nies that of­fer ser­vices in the govern­men­tal space. In SA its public sec­tor work in­cludes a new large-scale sys­tem and process re-engi­neer­ing con­tract from the City of Jo­han­nes­burg.

Tech­ni­cal view:

Once one of the best-per­form­ing IT shares on the JSE in re­cent years, EOH re­turned only 3% to share­hold­ers over the past 12 months. Al­though the group pre­sents a solid in­vest­ment case – it runs a ser­vice-based model built on low risk and good an­nu­ity in­come char­ac­ter­is­tics – its long-term rally seems ex­hausted. EOH failed to ex­ceed its all-time high of 18 000c/share last year, form­ing a lower top at 17 600c and an­other at 17 280c. On the charts a cor­rec­tion seems over­due, as EOH had been surg­ing since 2011. Go short: EOH has bounced on the sup­port trend­line of an up­trend it has formed within its long term range band be­tween 18 000c and 11 750c. The three-week rel­a­tive strength in­dex (RSI) is cur­rently bear­ish and would have to es­cape this trend to prompt fur­ther gains on the price chart.

If EOH fails to re­cover be­yond 15 700c, it could re­turn to its sup­port trend­line – and pos­si­bly breach it. A neg­a­tive break­out, that could send EOH back to the 11 750c key sup­port mark, would be con­firmed be­low 13 650c – in that case, go short. Stay short on con­tin­ued down­side through 11 750c, as it could then de­cline to the 10 300c prior low. Go long: EOH would retest its all-time high at 18 000c on up­side above 15 700c. It would em­bark on a new bull phase with the tar­get sit­u­ated at 24 560c on up­side above the 18 000c level.

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