EOH Group CEO Stephen van Coller has done a phenomenal job to turn the company around, but until its management starts to believe, the market won’t.
This is the view of some of South Africa’s top portfolio managers who were commenting on the company’s latest financial results.
EOH’s results for the six months to 31 January 2021 showed an operating profit of R59 million – a big improvement over the R915 million loss in the prior period.
There was a revenue decline of 29% from R6.194 billion to R4.376 billion, which Van Coller said was a result of the disposal of non-core assets and the exit of under-performing businesses.
He said these strategic decisions made EOH a more sustainable business delivering better quality earnings.
Despite the successful turnaround, there has not been an influx of institutional investors putting their money behind the company.
Wayne McCurrie, portfolio manager at FNB Wealth and Investments, explained that a lack of trust was to blame.
McCurrie said Van Coller has done a phenomenal job to turn the company around amidst tremendous challenges.
He added that there are good businesses in EOH with long-term contracts which generate annuity income.
There is, however, a problem. Institutional investors were badly burned by EOH.
Once the darling technology stock on the JSE, the EOH share price plummeted from nearly R180 per share in 2015 to under R3 per share last year in 2020.
Although the share price has recovered to around R8, it did not help too much.
“Institutional investors have a very long memory, so I can’t see institutions starting to invest in EOH yet,” he said.
Another problem, Perpetua Chief Investment Officer Delphine Govender and Biznews founder Alec Hogg said, was a lack of belief in the company.
Hogg asked Van Coller why long-term shareholders should keep the faith considering many had lost 95% of their capital.
According to Hogg, the EOH CEO’s response was bland. There was not a clear good news story and enthusiasm about the company’s future.
“Maybe Van Coller was reverting to his conservative banking roots. Or perhaps the former head of Absa Capital is gun-shy after overseeing two years of retrenchments, asset sales and having to ‘fess up on behalf of corrupt predecessors,” Hogg said.
“This is acceptable from a CEO running a corporate – but not one leading an entrepreneurial tech company.”
Hogg pointed to a Howard Marks memo to clients which argued that equity investors were looking for upsides and therefore required a good news story to support the numbers.
“After delivering its first half year of operating profit since cockroaches emerged, at last EOH looks to be at a tipping point,” Hogg said.
“But until its managers believe this, the market won’t.”