Our opinion on the current state of EOH

Enterprise Outsourcing Holdings (EOH) was Africa's largest information technology company with involvement in almost every aspect of computer applications. At one point the company had 11000 staff members, but that has now been reduced to 6151. It was, until August 2015, the darling of the JSE because it had a long track-record of steadily improving profits. It made a peak of R178 per share at a P:E of 35. An unsuccessful attempt to exceed that high (i.e., a double top) came a year later in September 2016 and since then the share has fallen steadily to reach a low of 146c in February 2023. This fall was initially accompanied by allegations that the company was involved in and owed its success to state capture in collaboration with the Guptas. The CEO and founder, Asher Bohbot, resigned in May of 2017 and handed over to Zunaid Mayet, who has now handed over to Stephen van Coller. Usually, when a company is run by a strong charismatic leader and that leader (like Bhobot) resigns, it is time to sell the share. The company's 200 subsidiaries have been consolidated into three divisions with centralised debt collection and procurement. On 6th July 2021 Business Day reported that EOH could possibly be "blacklisted" by the government as a result of its past tender frauds. This would obviously be very negative for the company. On 11th November 2022, the company announced a R500m rights issue and a R100m private placement mainly to reduce debt and on 13th February 2023 it announced that the offer had been 135,8% over-subscribed. In its results for the six months to 31st January 2023 the company reported continuing revenue up 8% and a loss from continuing operations of 14c per share compared with a profit of 14c per share in the previous period. The CEO said, "For the first time since 2019, I am able to address our stakeholders in the context of EOH being a normal business. For many years, we have been battling corruption scandals, unprofitable legacy contracts, inefficient corporate structures, huge debt burdens and a highly inefficient capital structure. Today, following our successful R600 million capital raise, EOH can now truly get back to business and focus on our Growth-Efficiency-Talent strategy.” In a pre-close update for the year to 31st July 2023 the company said, "Further improvement in continuing revenues of 8% year on year, including a 45% increase in international revenue. Stable gross profit margins at approximately 29%". In a trading statement for the year to 31st July 2023 the company estimated that it would make a headline loss of between 17c and 21c per share compared with a loss of 45c in the previous year. The company said, "During the second half of the year EOH successfully strengthened its capital structure through the R500 million rights offer and the R100 million specific issue to Lebashe Investment Group". Technically, the share is still falling as investors wait for the company to reduce debt and re-invent itself. To us it looks like the EOH share is consolidating at lower levels. It may have passed its worst point and be heading upwards now, but it remains risky.