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EOH plunges on weak earnings

Heps expected to be lower by between 20% and 30%, despite a 16% rise in revenue.

EOH’s share price plunged more than 15% on Wednesday after the JSE-listed technology services group disappointed investors with a weaker-than-expected earnings update.

The update, announced just days after the group unveiled a major restructuring and elevated former CEO Asher Bohbot to the position of non-executive chairman, has rattled investors.

Although revenue for the six months ended January 31 2018 is expected to rise by 16% to R8.4 billion, headline earnings per share are expected to plunge by between 20% and 30% compared to the same period a year ago.

Earnings before interest, tax, depreciation and amortisation is likely to be between 5% and 10% lower, at between R980 million and just over R1 billion, EOH said in a statement to shareholders. 

“Despite the challenging general market conditions during this period, most areas of the business coped well,” the group said. “However, certain areas in the business, particularly those operating in the public sector, have underperformed and did not timeously adjust their cost base.”

It said in view of the challenges, it has “adopted a deliberate customer retention strategy while sacrificing some margin”. It expects better performance in the second half of the financial year.

EOH said earlier this week that it will form two independent businesses within EOH, each with its own identity and brand, growth strategy, go-to-market approach, business model and culture.

Read: EOH announces major restructuring

The first business will trade under the EOH brand and focus on ICT services and solutions; the second will focus on specialised business areas with domain-specific intellectual property and operating in high-growth areas. The first unit will focus on organic growth, while the second will complement growth with acquisitions, it said.

At the same time, EOH has signed a new black economic empowerment deal with Lebashe Investment Group, which will also provide EOH with a funding facility of up to R3 billion.

EOH’s share price was trading 14.2% lower at R64.64 at 9.58am on Wednesday. The share has lost 56% of its value in the past 12 months. 

EOH share performance

This article was first published on TechCentral. To access the original, please click here.

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I have never been impressed by this group….since my old Treasury working days…
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Methinks the comment, ” However, certain areas in the business, particularly those operating in the public sector, have underperformed and did not timeously adjust their cost base.”, could be very true ! …

I am hovever pleased to see that you did not go the SAP route !

When companies focus on changing names and regrouping divisions, not a good sign.

The 5-10 year danger these acquisitive companies face, the original entrepreneurs who sold their business have got tired of corporate b.s. and have made their money and run. Businesses now run by accountants who have to “adjust their cost base” but will never see the type of growth generated by risk takers. In this case though decline helped by a large portion of the public sector business built around certain relationships which have wobbled with the changes coming down from the top. Will be solid but unremarkable for some time I foresee.

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