How ‘normalisation’ is bringing big contracts to EOH
The technology group says 'fake news stories' adversely affected its business in the first half of its 2018 financial year
Technology group EOH, which has been grappling with reputational damage since concerns were raised about an acquisition it made in 2015, says its business is finally “normalising”.
“Over the last three months, the EOH group has seen a marked increase in the number of large contracts awarded to it, indicating the normalisation of business activities,” the firm said in a trading statement.
Shares in the group closed 6.1% up at R36.55 on Thursday after it said earnings for the year to July would decline less than some analysts had expected.
Normalised headline earnings per share from continuing operations, a metric that strips out nonrecurring items, would probably fall between 30% and 45%. Revenue would increase by 8% to about R16.3bn.
Cratos Capital portfolio manager Ron Klipin said while more details on the group’s financial performance were needed, “it looks like they’re slowly moving in the right direction – but I would still be a little cautious”.
It was too soon to call it “the beginning of a new era”, and the information technology industry remained tough, Klipin said.
“Businesses are not investing in IT amid difficult operating conditions, and the government doesn’t have much money to spend on upgrading IT systems. It’s an industry that’s being impacted by the whole macro scenario, so those numbers are perhaps in line with what’s happening in the real economy today,” he said.
Klipin said the appointment of Stephen van Coller as EOH CEO was positive, partly thanks to his background in financial services and IT.
Van Coller, who joined the company last week, was previously MTN group vice-president for digital services, data analytics and business development.
He has also led Barclays Africa’s corporate and investment bank, and headed Deutsche Bank’s global banking business in SA.
“And maybe a pair of fresh eyes, and experience from outside the group, is what’s needed rather than an internal appointment,” Klipin said.
EOH said in its statement that “fake news stories” had adversely affected its business in the first half of its 2018 financial year. It had to sacrifice margins to keep customers, it said, and had battled to win large contracts.
In the second half, EOH was reorganised into two independent businesses, EOH and NEXTEC. This resulted in restructuring costs of R500m, while impairments of R90m were also recorded.
EOH said its black empowerment deal with Lebashe would result in a R1bn equity injection over 12 months.
The group’s stock has plummeted since October 2016, largely due to allegations of wrongdoing related to government tenders, which have since been retracted. The stock was trading at more than R170 in October 2016.
In 2015, it bought three businesses owned by controversial businessman Keith Keating, though it unwound those transactions in late 2017 for not meeting targets.
In December, the forced sale of shares held by two directors, Jehan Mackay and finance chief John King, added to its woes.