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.
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.
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.