EOH shares gain on news of R1.5 billion non-core sales
DURBAN – EOH rose more than 5 percent on the JSE on Tuesday after the IT group said it would sell more than R1.5 billion worth of non-core businesses in order to reduce its debt and deleverage its balance sheet.
EOH chief financial officer Megan Pydigadu said the disposal was necessary to reduce debt of R3bn.
“We have set ourselves in reducing this debt as we continue to clean up the business. We have sold businesses where we had limited competitive advantage or scale,” Pydigadu said.
The group said it realised about R523 million in sales in the financial year to the end of July. It also sold a 70 percent stake in CCS to strategic partner RIB for R444m.
In July, EOH repaid its bridge facility of R250m taken out during the year.
The group said it also restructured its operations into three units consisting of iOCO, NEXTEC and intellectual property (IP) businesses.
Peter Takaendesa, a portfolio manager at Mergence Investment Managers, said the restructuring would take time to materialise, given the current economic environment and increasing competition from Altron as well as a leaner Business Connexion.
“Management has now set some targets for 2021, but several restatements of normalised financial statements in the past 18 months and execution risks in the current operating environment make it very difficult to rely on those targets for valuation purposes,” he said.
EOH reported a 2.6 percent decline in revenue from continuing operations to R11.79bn. The group said the margin was negatively impacted by the close out of large multi-year public sector contracts and the closure of projects in the industrial technology area related to electrical infrastructure in the water sector.
Normalised earnings before interest, tax, depreciation and amortisation amounted to R792m. Its headline loss a share and loss a share from continuing operations widened to 1 352 cents and 2 464c, respectively.
The group has shaved more than R1.34bn off its market cap in the year to date and reported a loss of R4.01bn from continuing operations, up from R1.86bn, while operating loss increased to R3.37bn, up from R1.34bn compared to last year. Operating expenses after stripping out once-off items for both the 2018 and 2019 financial years saw costs decreasing to R2.6bn.
EOH said it incurred once-off impairments of R2.26bn and a R157m IFRS 2 charge related to the black economic empowerment transaction with Lebashe Holdco and its subsidiaries and settlements and provisions of R358m.
EOH shares closed 4.40 percent higher at R13.52 on the JSE on Tuesday.