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 11,000 staff members, but that has now been reduced to 6,151. Until August 2015, the company was 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 Bohbot) resigns, it is time to sell the share. The company's 200 subsidiaries have been consolidated into three divisions with centralized 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 year to 31st July 2023, the company reported revenue from continuing operations up 3.3% and a headline loss of 19c per share compared with a loss of 45c in the previous period. The company said, "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 to 31st January 2024, the company reported, "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's interest bill is expected to fall following the R600m capital raise.

In a trading statement for the six months to 31st January 2024, the company estimated that revenue would increase by between 5% and 7%. The company is expected to make a headline loss of between 10c and 12c per share compared with a 17c loss in the previous period. The company said, "The core Digital Enablement business, including International, has seen good revenue growth, however, this has been offset by reductions in other areas, particularly in the Operational Technologies division which has been negatively impacted by delays in closing Public Sector contracts and contracting delays with large mining customers."

Technically, the share is still falling as investors wait for the company to reduce debt and reinvent itself. To us, it looks like the EOH share is consolidating at lower levels. It may be close to its worst point, but it remains risky.