CCH`s termination marks end of four colourful years

By Iain Scott, ITWeb group consulting editor

Johannesburg, 08 Oct 2001

CCH, once the darling of the IT listings boom of 1997 and 1998, will be removed from the JSE tomorrow, ending an event-filled four years as a listed company.

The company, founded more than 15 years ago by Mario Pinheiro, has a colourful history which commentators say mirrors perfectly the rise and fall of the "new economy".

CCH`s share climbed from an opening of 340c on listing in September 1997 to its highest close of R47.80 in mid-August 1998, less than a year later. Both investors and the press watched with glee as the share climbed, seemingly without a limit in sight.

In its 1998 prime, CCH was rated on a price-to-earnings ratio of more than 300.

Pinheiro was initially not interested in global expansion, but did have an aggressive local acquisition policy, as he believed the local IT market offered the group sufficient opportunity for growth.

In April 1998, CCH made its most significant acquisition up until then, with the R60 million purchase of software and services company Software Futures, headed by Aletha Ling.

Then came the emerging markets crash in September 1998. The CCH share, along with many others, plummeted.

In just a month, between 12 August and 11 September, CCH lost 75% of its market capitalisation as the share plunged to R12. It recovered somewhat since then, but it would never again reach the heady levels of mid-1998.

By February last year, the CCH share had reached R35, helped by the mini IT boom of the time. But investor disillusion was already setting in.

Analysts began questioning the quality of CCH`s earnings as well as its acquisition policy, and the company was hit by insider trading allegations and management resignations. This, along with the fallout from the so-called dotcom crash, all dented confidence in the former darling.

The company announced in October 1999 that MD Mike Rolfe had resigned. Ling was named group CEO and Rob Shuter was appointed chief operating officer. Shuter quit a month later.

CCH`s acquisition of former Telkom company Infracom also did not please the market. Analysts warned that the two groups did not fit culturally or strategically and that there was little chance of long-term growth.

Analysts began saying that CCH was chasing after earnings growth at any cost.

Matters were not helped by the fact that Pinheiro was being investigated by the Insider Trading Directorate. He resigned in April last year.

The share price began falling in February 2000 after the group released its financial results for the six months to 31 December 1999. Analysts questioned the quality of earnings, noting that cash generated by operations amounted to only R4.66 million.

At the same time, CCH restructured its 17 operating entities into five strategic business units. Although it said it was a bid to clarify its focus and maximise its position as an e-business systems integrator, commentators said it was little more than a public relations exercise.

The restructure did nothing to bolster the share price.

The share`s southwards march was not halted by Pinheiro`s resignation in the wake of the insider trading probe. It was also hammered by a profit warning and the subsequent release of the year-end results.

In November last year, ending months of speculation, MGX announced that it would buy CCH, with the exception of Infracom.

When Infracom was sold, the listed CCH was left as the cash shell whose listing is to end tomorrow, bringing to a close an interesting roller-coaster ride characteristic of the rise and fall of the IT boom. The share, suspended at 63c last week, is a far cry from its days of glory.