EOH | Removing the gangrene
After 20 years of expansion and cR7.6bn of acquisitions, EOH recorded R3bn of once-off costs and impairments in its H1'19 results as it reassessed its operations. Positively, with new executive management, the Group is rationalising its portfolio for more sustainable growth. EOH will dispose of its low margin and loss-making businesses to improve cash generation. The disposals should reduce group revenue by c.21% (R3.4bn of annual revenues), with management signalling that it could raise R1bn in proceeds and increase group EBITDA by c.R400m on an annualised basis to R1.2bn. In our view, the acquisitive nature of the Group increased its complexity. Management lost focus of the core ICT business. Consequently, there are cost saving opportunities for management to target given a lack of acquisitive integration, governance and operational execution previously. We forecast EOH to reach an FY'18 EBITDA of R1.7bn (10% margin) in three years' time on a 15% smaller Group revenue.EOH Holdings is engaged in the provision of business and technology services. Co. develops business and information technology strategies, supplies and implements services and manages enterprise-wide business systems and processes for medium to larger clients. Co. operates within three segments: Infrastructure, which is engage in the sale of infrastructure products; software, which includes new software sales and maintenance; and services, which is engaged in the provision of services including consulting, systems implementation and integration and managed services. Co. operates in South Africa, Africa and the U.K.
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