EOH shares surge as it announces debt-reduction progress
CAPE TOWN – EOH Holdings announced yesterday that it had made its first capital repayment milestone in reducing its debt by repaying R540 million of R1.6 billion, which was in excess of the R500m it had agreed on with lenders.
The market welcomed the move, which saw its share price leap nearly 62 percent to R5.34 in intraday trade before closing 37.88 percent up at R4.55. Improved cash generation from operations and asset disposals should position EOH Holdings to continue to repay their debt in line with milestones agreed with lenders, analysts said yesterday.
Technology software and hardware services provider EOH is trying to reinvent itself after allegations of corruption in its past dealings with the government saw it close its EOH Mthombo business unit and adopt a strategy at the end of last year to reduce debt. The first payment was also well ahead of the August 31 deadline.
The group said it had repaid R1.77bn to its lenders – R1.14bn in capital and R626m in interest since August last year.
At the half-year results in that month, a R1.6bn deleverage plan was agreed with lenders.
The group said in an update yesterday that the group operations had improved, while the remaining 30 percent in Construction Computer Software was sold recently.
The group paid R75m in interest in May. Going forward, it would benefit from the drop in base interest rates of 2.5 percent, with all the group’s interest costs being at floating rates linked to Johannesburg Interbank Average Rate (Jibar). Since February 1, 2019, non-core asset disposals in excess of R1.4bn were signed, resulting in R865m in cash being received.
The sale of Dental Information Systems Holdings for R250m, announced in December, had been approved by the Competition Commission and was awaiting Competition Tribunal approval.
The sales processes for two of the IP assets were in final stages with bidders. Additionally, the sale of the third IP asset was launched in May, with significant interest received, the directors said.
Revenue experienced some downward pressure as a result of the lockdown in the quarter to end-May, but positive earnings before interest tax depreciation and amortisation was the result of a focus on costs and the elimination of unnecessary spend.
Collections from debtors books for February, March, April as well as May, remained strong, with all months recording collections in excess of R1bn. The group had cash balances of R893m as at June 3.
Mergence Asset Management head of equities Peter Takaendesa said his initial impressions were that EOH’s management team were executing well to reduce losses and limit the cash drain on the business, while operating in a challenging market.
EOH had indicated it had so far repaid R540m of the target of R500m by August 2020, and had outstanding proceeds of over R530m from the disposal of non-core assets.