EOH investors struggle to show any reward for their trust in the company and for participating in the rights offer earlier this year.
In October 2022, EOH announced that it was planning to raise up to R600 million through a R500 million rights issue and an additional R100 million BBBEE deal.
The proceeds were aimed at settling most of a bridge facility, and EOH believes it will leave it with a sustainable capital structure.
The successful rights issue was concluded at the beginning of the year, with EOH CEO Stephen van Coller saying it ushered in a new era for EOH.
He said it boded well for the company’s future to know that their strategy for EOH 2.0 has the backing of all their shareholders and lenders.
It was not long before the oversubscribed rights issue euphoria wore off, and the reality of the company’s challenges surfaced again.
EOH’s results for the interim period ending 31 January 2023 revealed shrinking revenue and a considerable decline in net profit.
Unsurprisingly, the EOH share price remained under pressure despite Van Coller and his management team talking up the company’s prospects.
After four years of asset disposals, at big discounts to book value, the company had less debt but also much less revenue and assets.
Investors who saw the problems early and dumped the stock early were the big winners. Those who stuck it out and believed in the turnaround story are licking their wounds.
Rights offer and shareholder pain
In the months following EOH’s rights offer announcement, the share price plummeted by around 40%.
Investors were faced with either realising the 90% loss or biting the bullet and doubling down on their investment.
The rights offer required investors to more than match their EOH investment value. If not exercised, it diluted investors’ value by almost 70%.
Many EOH shareholders have seen enough and dumped the stocks ahead of the rights offer.
Others were hopeful that the rights issue signalled a brighter future based on the turnaround strategy promised so long by management.
To date, the sceptics have been proven right, and those who backed EOH’s turnaround strategy have little to show for it.
When EOH announced the rights offer, it had a market cap of R897 million. The market cap fell to R565 million in January 2023 when EOH announced the final details regarding the rights offer.
EOH announced that the rights offer would allow investors to subscribe to 2.27 additional shares at R1.30 per share for every EOH share held.
Buying shares at the rights offer price of R1.30 compared to the market price per share at the time translated to a discounted rights price of 32% to 48%.
Daily Investor calculated that the breakeven EOH share price after the rights offer was around R1.70 per share.
This is the share price EOH would need to trade at after the rights offer to leave the investor in a neutral position, not making any gains or losses.
Since the rights offer, the EOH share price traded at an average of R1.71, almost identical to the breakeven share price.
Investors have, therefore, shown no gains since the rights offer was issued.