Why this SA company's share price doubled in a week
Barely a week ago, the share price of EOH - the largest technology services company in Africa - traded below R10. Yesterday, it closed at R20.
In a single day, the share rocketed 55% yesterday after the company announced that it will sell some of its businesses for an estimated R1 billion.
The company provides consulting and outsourcing services to 2,500 companies, and was licensed to sell Microsoft software licences – but this came to an abrupt halt after Microsoft cancelled this licence due to questions over an EOH contract with the SA department of defence.
The company appointed a former MTN and Absa exec, Stephen van Coller, in July last year, and yesterday announced a restructuring, which will see some of its 200 businesses sold off. Van Coller expects that selling these businesses could provide a significant boost to its profitability.
Yesterday, the company posted its latest half-year results, and announced that it wrote off the value of some of its assets by R1.7 billion. Its revenue remained flat at around R8.2 billion, but its “normalised” earnings tanked to R387 million from more than R1 billion.
EOH: For the first time ever, I feel like I'm reading a proper results commentary, and not a sales pitch. And the shares now up 23%. Off to the races!— Giulietta Talevi (@GTalevi) April 16, 2019
The company estimates its net asset value at R28.94 a share – which is still far from its current level of R20.
“So either the market is not trusting the reported net asset value, or something else is going on,” the investment blog South African Market Insights commented yesterday.
SAMI values the group at R22.80 – “with a massive disclaimer that we advise investors to be VERY cautious around EOH shares. And that we would have preferred not to do a valuation until all the business ethics issues and full impact of Microsoft Channel agreement being cancelled has filtered through.”
Despite the past week's rally, EOH remains far below levels reached in the past few years.
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