JSE-listed technology services company EOH is continuing its spending spree.
Yesterday, the company announced the acquisition of Mehleketo, a local provider of rail automation and technology solutions, for an undisclosed amount.
Mehleketo has a turnover of over R300 million, technology partnerships with the major international rail automation technology OEMs and about 350 employees.
It is one of the top rail signalling and communications engineering and systems integration solutions providers in SA, and has a number of long-term projects as well as maintenance and support contracts with the major operators in the country.
It was recently involved in the building of the Passenger Rail Agency of SA's R155 million Gauteng Nerve Centre, which monitors train traffic in the province. The signal control hub, situated in Tembisa, was officially opened this month.
The Mehleketo acquisition comes at a time when EOH has made it a habit of posting strong financial results. For the year ended 31 July, the company announced revenue was up by 35% to R9.7 billion.
The growth was due to a combination of strong organic growth and successful acquisitions, and the company has no plans to slow down.
"Having the Mehleketo team join EOH enhances our industry vertical strategy, as they bring additional best-of-breed solutions, complemented by highly skilled professionals with deep industry knowledge, which in turn provides us with a platform for healthy growth in this sector in both South Africa and the rest of the African continent," says Zunaid Mayet, executive director of EOH Industrial Technologies.
"It's very exciting to have Mehleketo join the EOH family. They will take us to new places and markets which are strategic to EOH's growth plans," says EOH Group CEO Asher Bohbot.
"The culture of Mehleketo fits well with that of EOH - this is fundamental for successfully leveraging our core strengths. Our industrial technology division, of which rail technology is part, is a major component of our growth strategy," adds Bohbot.
In February, EOH bought CCS, which provides integrated niche management solutions for the construction and mining industry sectors, for an undisclosed sum. CCS then had a turnover in excess of R200 million, and presence in 50 countries, including SA, Middle East, Europe, Australia and South America.
In June, EOH announced it was acquiring an equity stake of between 49% and 80% in pan-African IT applications and business solutions provider Twenty Third Century Systems and its subsidiaries, for an undisclosed amount.
Financial analysts at Absa Stockbrokers believe EOH's growth is likely to soften as the company matures.
"EOH's shares have been flying, mirroring its earnings which are growing at a blistering pace. But now with annual revenue inching closer to R10 billion, maintaining previous growth rates of 30% or above is going to be difficult.
"As the group gets bigger, further softening of earnings is likely. As this happens, the market is also likely to slowly adjust its share ratings to reflect slowing earnings growth. Currently, EOH's shares are sporting a hefty 12-month price earnings multiple of 33 times."
The analysts say while EOH's growth over past years was largely acquisitive, they are starting to see organic growth contributing more to the financials.
"We find this more comforting as it allays fears of hard landing should the group run out of acquisition targets," the stockbrokers say.
With most of EOH's acquired targets having fitted perfectly into the overall group structure, the company is starting to reap the benefits as these businesses expand within their areas of focus, Absa Stockbrokers notes.
EOH shares closed yesterday at 15 312c.
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