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Earnings warning sends EOH stock into nosedive

Paula Gilbert
By Paula Gilbert, ITWeb telecoms editor.
Johannesburg, 15 Mar 2018
EOH group CEO Zunaid Mayet.
EOH group CEO Zunaid Mayet.

A prediction of weaker interim earnings sent EOH's share price into a nosedive yesterday, with the stock on the Johannesburg Stock Exchange falling by almost 21% to a closing price of R59.50 per share on 14 March.

EOH said headline earnings per share, for the six months ended 31 January, are expected to be between 307cps and 350cps, reflecting a drop of between 20% and 30%, compared to 438cps a year ago.

Interim revenue, however, is expected to increase by 16%, to R8.4 billion while earnings before interest, tax, depreciation and amortisation from continuing operations will be between R980 million and R1.035 billion, reflecting a decline of between 5% and 10%.

Earnings per share (EPS) are predicted to plummet by between 85% and 90% to come in at between 44cps and 66cps. EPS were impacted by a once-off deduction of R399 million from the disposal of some businesses in the GCT Group.

"Despite the challenging general market conditions during this period, most areas of the business coped well. However, certain areas in the business, particularly those operating in the public sector, have under-performed and did not timeously adjust their cost base," the company said.

"In view of the challenges during the period, EOH adopted a deliberate customer retention strategy whilst sacrificing some margin."

The group says it expects better performance from the under-performing units over the next six months, as well as improved market conditions and increased business confidence.

EOH's interim financial results are expected to be announced on 28 March.

Earlier this week, the technology services firm announced plans to split the company into two independent businesses. It says one business will continue to trade under the EOH brand and the second business, to be called NewCo, will create and launch its own brand and identity "within the following two months".

EOH CEO Zunaid Mayet said the changes aim to simplify the EOH business model, "whilst bringing clarity and focus in our approach to the market, and ultimately optimally positioning our business for further growth".

The EOH business will focus on ICT services and solutions. Meanwhile, NewCo will be characterised by a high degree of specialisation in each business area; it will have domain-specific IP; each business area will be less integrated and operate relatively autonomously; it will operate in high growth industries and be differentiated by its domain-specific offerings.

Under pressure

After the share price slid to R59.50 per share yesterday, it did recover slightly this morning and at 10:15CAT was trading 5.6% higher at R62.82 per share. EOH's share price has been under pressure for quite some time and the stock has dropped by almost 57% over the past 12 months.

In December 2017, the share price fell almost 42% over a four-day period after "extraordinary volumes" of EOH shares were traded in forced stock sales due to margin calls involving two directors.

Last May, the share price was also hit when the market did not respond well to news that founder and CEO Asher Bohbot was stepping down after 19 years leading the company.

In July, the share price dropped once again after the Business Report published an article that alleged the company had been involved in corruption linked to services provided to the South African Social Security Agency, a claim that EOH vehemently denied.

EOH's market capitalisation is R9.08 billion.

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