We recently met with various executives at EOH to better understand and appreciate the changes to the business since last meeting the company in 2018, prior to the appointment of Stephen van Coller as CEO. In the past two years it is one of the most reported on SA companies by the media and the JSE – it has released 112 SENS announcements since 1 September 2018. In this note we take stock of where the company is on its transformation and what the growth strategy is going forward as normality approaches. Our note does not delve into earnings and valuation as a stable earnings platform is yet to be achieved given ongoing material disposals, write downs, restructuring costs etc. We anticipate FY21 to provide a realistic earnings base from which growth can be achieved, measured and forecast.

We do not want to delve too deeply into EOH’s turnaround but focus more on its operations, its strategy, opportunities and risks. However, highlighting some of the events that have occurred sheds light on the magnitude and complexity of the problems that the new management team had to contend with. All the time being very transparent to stakeholders and ensuring customers and suppliers are kept satisfied and retained. The new management team believe strongly in EOH’s future as they have given up senior positions at numerous blue-chip companies and exposed themselves to reputational and financial risk.

EOH was a sizeable IT solutions company, the biggest in SA before its turnaround. Its rate of acquisitive growth was astounding and not even its clients realised how broad the group’s reach had grown. For this reason, its demise would have had systemic risk issues, particularly in the public sector where it was assisting large municipalities (City of JHB, Tshwane) and services (SASSA, Home Affairs). Its presence across SA banks and insurers was also significant, although this became more apparent as the turnaround was underway. Therefore, failure was not an option and assistance from the public sector, its large financial clients and its lenders was key.

Pending clarity on SITA’s stance on public sector participation (management is confident a status quo will be maintained), we believe EOH news flow will turn positive as it demonstrates its returned path to financial growth with significantly better earnings visibility. With management more focused on the future of the business and reputation risk dissipating, we anticipate the business pipeline to grow and on more favourable contract terms. This combined with EOH’s strong market presence, energised management team and world class service offering in a high growth sector, its likely to see investors once again being attracted to the company.

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