EOH’s troubled past and outlook under CEO Stephen van Coller

Stephen van Coller

EOH was once the darling of the JSE, but corruption and poor corporate governance crushed the company and destroyed billions in shareholder value.

EOH was founded by Asher Bohbot in 1998 and became one of South Africa’s best-known IT companies.

EOH specialised in providing technology services to businesses and government and remained entrepreneurial and acquisitive throughout Bohbot’s tenure as CEO.

With compounded year-on-year growth of 45.2%, EOH became the fifth-best performing company on the JSE by 2012.

The EOH share price peaked at over R172 in July 2015, with a market cap of R23.7 billion.

The house of cards came tumbling down after bribery and corruption allegations emerged in 2017.

To make matters worse, Bohbot shocked the market when he suddenly stepped down at the end of June 2017.

The EOH share price plummeted from R171 in December 2016 to under R50 a share a year later.

EOH employed former MTN executive Stephen van Coller as CEO in September 2018 to fix the mess, but more corruption scandals continued to emerge.

By March 2020, the EOH share price dipped below R3.00. The former darling on the JSE became a pariah that investors would not touch.

EOH share price

Apart from reputational damage and threats of blacklisting because of corruption, EOH also had a big debt burden.

In 2018, EOH had total debt of R4 billion, which posed a significant constraint to the company.

To reduce its debt, EOH sold many subsidiaries, including Syntell, Sybrin, Hymax, Hoonar Tekwurks Consulting, Managed Integrity Evaluation, Xpert Decision Systems, and Zenaptix.

It significantly reduced its debt, but the next challenge emerged – declining revenue and growing net losses.

Van Coller lowered EOH’s net loss from R4.9 billion in 2019 to R280 million two years later.

EOH revenue and net income

In the first six months of its 2022 financial year, EOH recorded a profit for the first time since 2017.

It indicated an improvement in the gross and operating profit margins, suggesting that the group is successfully implementing its turnaround strategy.

EOH also further reduced its gross debt to R 1.33 billion, which bodes well for its strategy to cut debt and become profitable.

However, it has disposed of a few good businesses, putting pressure on revenue and growth.

Having said that, the company can now focus on its core revenue generators and grow organically.

Analyst view

Irnest Kaplan from Kaplan Equity Analysts

South Africa’s top technology equity analyst, Irnest Kaplan, shared his views on EOH in a discussion with Trader’s Corner’s Garth Mackenzie.

Kaplan said EOH, under Bohbot, created a fantastic business offering specialised software services to South African businesses.

They created a broad IT services group and fuelled growth through smart acquisitions at low multiples.

However, EOH got too big to be run as a small, entrepreneurial business, and Bohbot did not adapt to its incredible growth.

There was also pressure on EOH to continue to make acquisitions to support the rapid growth the market started to expect.

“They made a few dab mistakes. They bought the wrong companies and got involved in projects which sucked up huge amounts of working capital,” Kaplan said.

The company started to unravel, accelerated by corruption allegations and blacklisting threats.

Fast forward a few years, and EOH continues to face many challenges in creating a stable, investable business.

They are in the final stages of recapitalisation, which may include a rights issue to raise extra cash and reduce debt.

Kaplan said Stephen van Coller had done a fantastic job implementing the needed corporate governance measures and creating systems to run a large business.

However, from a technology perspective, they have lost a lot of traction because of all the problems they faced.

“They have lost a lot of ground, and the reputational damage remains a problem for the company,” he said. “They have still not mended their broken relationship with Microsoft .”

Kaplan said if investors make money from EOH from its current levels, it will not be as significant as in the company’s heyday.

“You may do well over the next two to three years, but it will not be a rocketship anytime soon.”