EOH shares plunge to decade low on murky outlook

Shares in JSE-listed technology group EOH Holdings plunged to levels last seen more than 10 years ago on Wednesday as investors continued to fret about its prospects following serious corporate governance lapses, wrongdoing in public-sector contracts and massive financial losses.

The share touched a low of R8.75 in intraday trading in Johannesburg, its lowest level since late 2009. Since the start of year, it has plunged 28%, while over three years the share has lost a staggering 94% of its value. Its market value has sunk to just R1.8-billion.

The latest declines comes as EOH prepares to enter a closed period ahead of the publication of the group’s interim results for the six months to 31 January 2020.

At the presentation last year of its results for the 12 months to July 2019, CEO Stephen van Coller described the financial year as “one of the most challenging periods in the history of EOH”. It reported a loss from continuing operations of more than R4-billion, though the revenue held up well.

Its share price has failed to recover after it emerged last year that Microsoft had cancelled a channel partner agreement with the group over alleged malfeasance in a software supply deal to the South African department of defence. This led to EOH instituting a deeper probe, which uncovered evidence of wider malfeasance.

“With Microsoft announcing its cancellation of the EOH channel partner agreement and the subsequent ENSafrica investigation, which uncovered R1.2-billion of suspicious transactions, management’s efforts have been focused on ensuring the right leadership and governance structures are in place and that people are held accountable for what has transpired,” the group said at the time of its full-year 2019 results.

Blacklisted

The sum was later modified by ENSafrica, the law firm contracted by EOH to conduct the probe, to R935-million. This included transactions with no evidence of contracting or work done – valued at R665-million – loans written off of R90-million and overbilling valued at about R180-million.

EOH blacklisted and suspended payments to 50 enterprise development partners implicated in this activity.

The latest slump in EOH’s share price comes amid broad market negativity toward smaller-cap companies in South Africa, according to one analyst who covers the sector.

Other IT shares have also been sold off heavily, most notably software provider Adapt IT, which has shed 77% of its value in the past three years.

This general negative sentiment, coupled with the extremely tough economic environment and the massive losses reported by EOH at the full year, have all combined to knock the share lower, according to the analyst, who asked not to be named. It may take at least one or two reporting periods before the currently murky outlook for EOH improves, he said.  — © 2020 NewsCentral Media