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JOHANNESBURG - EOH Holdings fell 7 percent during early trade on the JSE after the group reported a massive decline in earnings for the six months to January.

The profits declined to R70.94 million, with the company attributing the decline to the reversal of the sale of its Grid Control Technologies and Forensic Data Analysts businesses back to their original owners for R392m.

The company said profit from continuing operations eased 18.15 percent to R463m during the period, compared with R565.53m reported last year.

EOH is the largest technology services company in Africa, and has a wide range of solutions in industry consulting, IT services, software, industrial technologies and business process outsourcing.

The group said its revenue, however, increased 18.78 percent to R8.35 billion, up from R7.03bn, while headline earnings a share from continuing operations decreased to 314 cents a share from 415c a share.

The group derives 85 percent of its revenue in South Africa.

The group said it was confident that it would turn its profits around during the second half of the year.

“The group will continue to develop new services, products and solutions; meet customers’ ever-increasing technology needs; partner with new vendors, both locally and abroad; build stronger partnerships with existing customers; and provide more of their technology needs through the more focused ‘go-to-market’ approach of the two new businesses,” the group said.

The group did not declare an interim dividend.

Impacted

Peter Takaendesa, a portfolio manager at Mergence Investment Managers, said the results reflected weaker economic conditions last year.

Takaendesa said EOH was further impacted by company-specific issues related to the public sector contracts allegations, as well as unexpected management changes.

“This is the first time in over a decade that EOH has reported a decline in earnings. The outlook statement is encouraging; as the economy recovers, profit margins will be recovering from a lower base, and EOH has significantly improved its black economic empowerment (BEE) shareholding to over 50 percent.”

Takaendesa said EOH still needed to address all the corporate governance questions raised over the past year, improve cash generation and return to earnings growth for investors to price the shares back to where they were prior to all the issues that had affected the share price over the past 12 months.

“The shares are looking very cheap if EOH can address all these issues and return to normalised profitability and earnings growth,” he said.

“What is encouraging is that revenue has grown 19 percent, including new businesses acquired over the period, and about 13 percent revenue growth from businesses that were in the portfolio prior to the reporting period. This growth is ahead of the IT market in South Africa, and supports management’s claim that they have gained market share. Unfortunately, that growth has been achieved at the expense of short-term profitability, and key to watch is if they can recover margins in the second half of the year, as promised,” Takaendesa said.

EOH shares closed 4.17 percent lower at R46.00 on the JSE yesterday.

- BUSINESS REPORT