Our opinion on the current state of EOH

Enterprise Outsourcing Holdings (EOH) once held the distinction of being Africa's largest information technology company, involved in a broad spectrum of computer applications. At its peak, the company boasted an employee count of 11,000, a number that has since dwindled to 6,151. Until August 2015, EOH was a favored entity on the JSE, known for its consistent profit growth. Its pinnacle saw its shares trading at R178 per share with a P:E ratio of 35. A year later, in September 2016, an unsuccessful attempt to surpass this high marked the start of a steady decline in share value, eventually reaching a low of 146c in February 2023.

This descent was initially accompanied by allegations linking the company to state capture and its collaboration with the Gupta family. In May 2017, CEO and founder Asher Bohbot resigned, passing the reins to Zunaid Mayet, who later ceded leadership to Stephen van Coller. Leadership transitions, especially following the departure of a strong and charismatic leader like Bohbot, often signal a time to divest from a company.

EOH undertook a consolidation effort, reducing its 200 subsidiaries into three divisions while centralizing debt collection and procurement. On July 6, 2021, Business Day reported the potential blacklisting of EOH by the government due to previous tender frauds, a development that could significantly harm the company.

On November 11, 2022, EOH announced a R500 million rights issue and a R100 million private placement, primarily aimed at reducing debt. By February 13, 2023, the offer had been oversubscribed by 135.8%.

In its financial results for the year ending July 31, 2023, EOH reported a 3.3% increase in revenue from continuing operations and a headline loss of 19c per share, an improvement from the 45c loss in the previous period. The company highlighted, "EOH generated an operating profit from continuing operations of R135 million for the year ended 31 July 2023 ("FY2023") following an operating profit from continuing operations of R100 million for the year ended 31 July 2022 ("FY2022"), an increase of 35%."

In an update on the six months ending January 31, 2024, EOH noted, "EOH has managed to maintain stable gross margins as previously reported in FY2023, illustrating the continued commitment from our customers. The Group Debtors' days remained constant, and net cash balance is stable at R232 million on 29 January 2024." The company anticipates a reduction in its interest expenses following the successful R600 million capital raise.

From a technical perspective, EOH's share price continues to decline as investors await the company's efforts to reduce debt and reinvent itself. While it may be approaching its lowest point, the investment remains laden with risk.