EOH shares climb as outlook improves

Shares in JSE-listed EOH Holdings rose more than 5% in Johannesburg on Wednesday morning after the IT services group reported its first financial results following its recent rights issue.

The group, which has been through the wringer in the past few years after investigations found it was a central player in public sector corruption, said it reported R110-million in operating profit for the six months ended 31 January 2023. That’s more than double the full-year operating profit reported to end-July 2022, suggesting the business is now pointed in the right direction operationally.

Revenue from continuing operations climbed by 8%, despite what EOH described as a “challenging local operating environment”, while gross profit margins remained “stable” at 29%. It reported a cash balance at end-January of R234-million.

The financial results follow EOH’s recent recapitalisation, which saw R600-million in new capital raised from shareholders, including R100-million from Lebashe Investment Group, that brought the group’s interest-bearing debt down to more manageable levels. EOH has now repackaged the remaining debt under a single facility with Standard Bank.

“With the improved operating performance and outlook in the 2022 financial year, the board was able to approve an R80-million strategic investment into the business, of which R48-million has been invested in the first six months [of FY2023],” it said. “Additionally, the recent successful capital raise significantly reduces interest charges. Going forward, EOH will further accelerate its organic growth strategy, especially on the back of the pleasing results being seen on the initial investments.”

EOH said its Digital Enablement division performed well in the latest interim reporting period, with a 20% increase in revenue and 24% improvement in earnings before interest, tax, depreciation and amortisation (Ebitda), which drove higher margins. International diversification also helped, with the Middle East, Europe and the UK showing “excellent growth”. Offshore business now accounts for a third of Digital Enablement revenues.

‘Momentum’

“The IT Infrastructure Services, Enterprise Apps & Software and Infrastructure Solutions divisions all saw pleasing revenue growth over 10%,” the group said. “The Operational Technologies business had a challenging trading period primarily due to delays and the inability to close contracts with state-owned enterprises, resulting in a 10% reduction in revenue. This business is reliant on SOEs and mining in South Africa, but diversification initiatives have started with investments into West and East Africa.”

In a media statement issued with its interim results, EOH said its executive management team and board are “excited” about the “momentum that has built over the past six months”.

“Compared to the previous six-month period (the second half of the 2022 financial year) all key metrics have improved, with revenue increasing 5%, gross profit 13%, adjusted Ebitda 112% and profit after tax 82%.

Read: Successful rights issue a ‘watershed moment’ for EOH: Van Coller

“Furthermore, with the completion of the asset disposal process to deleverage the company, EOH now has a stable portfolio of businesses with a coherent go-to-market strategy,” it added.

CEO Stephen van Coller said: “Our initial growth investments are showing great results and we will continue to build on this momentum while maintaining our focus on cost efficiencies and making EOH the employer of choice in the IT industry.”  — © 2023 NewsCentral Media

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