EOH’s JSE meltdown now rivals Steinhoff’s
A delisting or a piecemeal break-up of the group could be on the cards, says fund manager
Following a series of reputational knocks relating to government contracts, technology group EOH’s meltdown on the JSE now rivals Steinhoff’s.
Thanks to another 16.4% drop on Tuesday to R14.61, the technology company’s shares have plunged 92% from the highs reached in late 2016.
The latest sell-off was sparked by a report from online technology news site TechCentral that Microsoft’s decision to cut ties with the company was linked to an allegedly corrupt contract with SA’s defence department.
Its decline in percentage terms now rivals Steinhoff’s, which has slipped 96% since the retailer announced that it had uncovered "accounting irregularities" in December 2017 in what has become one of the country’s biggest corporate scandals.
EOH told investors on Tuesday to be cautious when trading its shares while it and law firm ENSafrica looked into its past bids for state contracts — including those that involved Microsoft products.
With the share price now at its worst level in more than eight years, and further declines a possibility, a delisting or a piecemeal break-up of the group could be on the cards, according to Ashburton Investments fund manager Nick Crail.
Ashburton had sold out of EOH about a year ago after losing faith in the stock as sentiment soured, he said.
"It looks close to catastrophic for them at the moment," Crail said. While the group was probably too big to fail, it could run into funding issues as raising equity at current levels was "unattractive" and appetite from lenders was probably near rock-bottom.
"I think there’s very little value-add in being a listed entity for them at the moment, so you might find some sort of private equity type of arrangement," Crail said.
A Microsoft spokesperson told Business Day on Tuesday that the decision to cut direct
ties with EOH had not been taken lightly.
"Although we do not comment on the specifics of our partner relationships, we felt it necessary to make the tough decision to end our partnership even after weighing the possible impact," the person said, asking not to be named.
EOH’s new CEO, Stephen van Coller, said the group was putting new governance processes in place, which would be vetted by PwC, to ensure that future contracts were untainted.
It aimed to have antibribery certifications in place by July and had launched a portal for whistle-blowers, he said.
Van Coller also urged "anyone who has evidence" to assist the company in rooting out unethical business practices.
"If people don’t come forward with information, it’s very difficult to sift through 273 legal entities and 11,500 employees.
"But the point is if you start putting the right systems in place, you limit it or you can catch it."
Citing disclosures at the Zondo commission of inquiry into state capture, Van Coller said that with its large workforce, it was possible EOH had become "a little bit representative of the population" during a corrupt period in SA’s history.
"When you go through a difficult 10 years, you’re going to have some contagion, and I don’t think it’s just us."