EOH hammered in 2021

EOH has been hammered in 2021. It faces a public sector blacklisting threat, the SIU continues to investigate corrupt EOH contracts, and its share price plummeted by 46% this year.

Founded in 1998 by Asher Bohbot, EOH is one of South Africa’s best-known IT companies and provides technology services to businesses and the government.

With compounded year-on-year growth of 45.2%, EOH became the fifth-best performing company on the JSE by 2012. Its strong run continued, and the EOH share price peaked at over R170 in July 2015.

After years of exceptional growth, EOH’s house of cards came tumbling down after bribery and corruption allegations emerged in 2017.

To make matters worse, Bohbot shocked the market when he suddenly stepped down at the end of June 2017.

The EOH share price plummeted from R171 in December 2016 to under R50 a share a year later. Something was clearly wrong at the company.

EOH employed former MTN executive Stephen van Coller as CEO in September 2018 to fix the mess. This was not an easy task.

Corruption scandals continued to emerge, and by March 2020, the EOH share price dipped below R3.00. This caused tremendous wealth destruction.

Stephen van Coller
EOH CEO Stephen van Coller

Despite the challenges faced by EOH, Van Coller remained focused on weeding out corruption and addressing the company’s debt burden.

This strategy started to pay dividends. For the six months to months to 31 January 2021, EOH showed an operating profit of R59 million – a big improvement over the R915 million loss in the prior period.

The EOH share price also had a good run. It improved from R2.59 in March 2020 to R9.60 in January 2021.

Since then, however, it has not been a good year for EOH. Its share price declined by 46% this year as the company continues its struggle to rid itself of its corrupt past.

Van Coller’s transparent cooperation with the SIU, Hawks, and the Enquiry into State Capture had unintended consequences. EOH became the poster child for corporate corruption in South Africa.

Steven Nathan, the founder of 10X Investments, said Van Coller’s actions keep reminding people about corruption at EOH, which has a negative impact on clients and staff.

Nathan said Van Coller’s decision to play open cards about corruption at EOH “definitely had consequences and some downside.”

EOH became a soft target for the government and law enforcement agencies to show they are taking action against corruption.

In April 2021, the SIU released a press statement about uncovering irregularities related to a R250 million Microsoft Software Licences procurement contract awarded to EOH by the Department of Defence (DoD).

The SIU found that the contract was irregular and that EOH overcharged the department by more than R40 million.

What was strange about the SIU announcement is that it was nothing new. EOH actually agreed to pay back the money at the end of September 2020.

It did not matter. It reminded the market that EOH was a corrupt company, and investors continued to sell their EOH stock as they do not like risk.

Luvuyo Keyise
Luvuyo Keyise, SITA executive caretaker and administrative authority

In July, EOH suffered another blow when it emerged that it was close to being blacklisted from doing business with the government as punishment for tender fraud.

The State Information Technology Agency (SITA) was reportedly looking at recommending to National Treasury that EOH should be restricted from doing business with the public sector.

SITA’s executive caretaker and administrative authority, Luvuyo Keyise, would not comment in this report. He did, however, say, “the government’s hard-line against corruption should be backed up by reform”.

EOH hit back, saying it should not be blacklisted for tender irregularities because the corruption was perpetrated by the old management of EOH, who has left the company.

“EOH and ENSafrica have suggested to SITA they should recommend that the old EOH management be blacklisted and not the new leadership,” EOH said.

In August, the Special Investigating Unit (SIU) announced it would investigate four IT contracts to the value of R474 million awarded to EOH by the Department of Water and Sanitation (DWS).

The contracts linked to corruption and maladministration were awarded by the DWS to EOH between 2012 and 2017.

The continued reports of corruption and potential blacklisting took their toll, and the EOH share price plummeted by 46% in 2021.

Asked about the share price decline, Van Coller said they could not speculate on the trading environment and EOH share price.

He highlighted that EOH has not sent out any recent communications to the market that may have influenced the share price.

“However, it is important to note that our shares are very thinly traded, and this creates volatility,” Van Coller said.

He added that EOH’s share register has remained stable with their largest shareholders from the beginning of 2021 remaining invested.

The loyalty among large shareholders, Van Coller said, shows their trust in EOH’s continuous progress in its turnaround plan.

Asked whether he feels that EOH is paying the price for its transparent approach to corruption at the company, Van Coller said he still believes it is the best approach.

“EOH believes that through its transparent engagements, some uncertainty may have been created as we close out legacy issues,” he said.

“However, as a listed company, it would be unethical for us not to give shareholders a transparent view of the issues the company is dealing with for them to make their investment decisions.”

He said EOH had made significant progress in closing out the legacy issues and has made provisions on its balance sheet that are a best estimate of the expected outcome.

“EOH financial statements have been audited by the EOH auditors and resulted in an unqualified audit for the 2020 financial year,” Van Coller said.

“However, until all the issues are closed out, there may be a level of uncertainty as to the actual fair value of EOH shares.”

He said EOH would continue to cooperate with the authorities to get to the correct and fair outcome based on the actual facts.

“EOH trusts that this matter can be concluded on an accelerated basis as certainty on this issue will also remove any perceived uncertainty in the market,” Van Coller said.

Now read: EOH CEO Stephen van Coller has done a phenomenal job – it is now time to believe

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EOH hammered in 2021