EOH shares totter on corruption probe deadline announcement
EOH said its results for the financial year would be announced soon after the investigation.
It referred shareholders to the cautionary announcement released in February and subsequent related communication relating to the internally initiated investigation into the public sector contracts.
“Investigations are expected to be completed by May 31, with a report being made available thereafter,” the group said.
EOH’s shares dipped to R9.83 yesterday morning before recovering later in the day.
The company has been on a tightrope since 2017, when allegations of corruption involving a SA Social Security Agency contract surfaced. Since then, similar allegations have came to light.
The broadside came when its strategic partner, US software giant Microsoft, ended EOH’s “channel partner agreement” status as a result of allegations of corruption regarding the awarding of a software supply contract by the Department of Defence to subsidiary EOH Mthombo.
EOH subsequently told shareholders it was no longer a reseller of Microsoft software licences, and consequently, a number of its subsidiaries received more cancellation notices from Microsoft Ireland.
“This will bring the total impact of Microsoft exposure to R30million profit before tax. Moreover, there is an overall medium- to long-term go-to-market and credential impact and risk in not retaining Microsoft Gold Partner status,” EOH said in a statement.
Avior Capital Markets analyst Ruhan du Plessis maintained there was value in the shares even with the debacle of the contracts, and speculation would be settled in two weeks when EOH was expected to release its interim results.
“They are not going to be bankrupt and liquidated by the end of May when the investigations are concluded.
“They have said already that they are getting rid of the public sector business. Of course, they might suffer reputational damage, but there is value in that company,” Du Plessis said.
In December, EOH chief executive Stephen van Coller, who had joined the group in September, indicated EOH was wary of taking on large projects for the public sector, which owed the group about R600million, saying although the public sector tended to pay on time for annuity-type contracts, state entities were less punctual when it came to multi-year “complex transformational projects”, mainly due to frequent leadership changes.
Irnest Kaplan, managing director of Kaplan Equity Analysts, said it was a positive development that EOH had set a timeline for the completion of the investigation, because the market did not like uncertainty, although he cautioned that a full picture would be revealed mid-month with the interim results. It is very tricky to call right now,” Kaplan said.
EOH shares closed 1.71percent higher at R10.68 on the JSE yesterday.