EOH shares jump more than 50% on asset sales
The group says it expects lower future earnings, which means it needs to cut debt by selling noncore assets
EOH’s shares jumped as much as 52.7% to R19.85 on Tuesday morning — the best level in six weeks — after the technology group reported results for the six months to January and said it would raise R1bn through asset sales to reduce debt.
The company, once a titan in the SA information and communications technology (ICT) sector, has been plagued by governance concerns in recent years. Under new CEO Stephen van Coller, it has been looking into past bids for government contracts, one of which was said to have cost the company its partnership with Microsoft.
EOH said on Tuesday it had impaired the value of certain assets by R1.7bn. Its net asset value fell 39% to R4.6bn.
The group said it expected lower future earnings, which meant it needed to cut debt, mainly by selling noncore assets.
Eight assets were up for sale and the company had already received binding offers for two of them, van Coller said.
EOH expected the sales to bring in R1bn over the next three to 12 months.
New group finance chief Megan Pydigadu said the company aimed to use the proceeds to reduce debt. It aimed to reduce its debt-to-earnings ratio to 1-1.5 times.
Aside from asset sales, EOH planned to "release" R1bn in cash from debtors, Pydigadu said.
The company, which had liabilities of R7.5bn at the end of January, reported an interim loss of R3.3bn, from a R70.9m profit a year before.
While revenue was flat at R8.4bn, profits were dented by write-downs and slimmer margins.
“These last six months, including events post-period end, have been extremely challenging for the group,” EOH said.
“In addition to difficult trading conditions, EOH has been the subject of ongoing governance allegations, compounded by Microsoft cancelling its channel partner agreement.
"This has accelerated shareholder value destruction and raised further questions about historic governance practices,” the company said.
ENSafrica’s investigation into historic bids for state work was expected to be wrapped up by the end of May, Van Coller said.
He said two criminal cases had already been opened, and the company was looking into five potentially irregular bids.
The company had also identified operations it planned to shut down, including the project and electrical infrastructure units in the Nextec division, which mainly operate in the water industry.
Update: April 15 2019
This piece has been updated to reflect the share price jumping to 52.7% at R19.85, compared to its earlier move of 32.7% at R17.25.