Confusion, panic as EOH plunges 45% - TechCentral

Confusion, panic as EOH plunges 45%

EOH’s share price plunged more than 45% in intraday trading on Thursday, though industry analysts polled by TechCentral didn’t know why it tumbled so precipitously. However, the slump may be related to Independent Police Investigative Directorate (Ipid) raids on Monday to do with alleged corruption at the South African Police Service.

The company did not directly respond to a request for comment on why its share price fell.

Shares in EOH, which had already fallen by more than 11% in trading on Wednesday, plummeted to R37.99 in afternoon trading on Thursday, down 45.6% on the session, before regaining some lost ground. They closed at R45, down 34.7%. They have lost 72% of their value since January.

The share price has come under considerable selling pressure this year following the resignation of founding CEO Asher Bohbot, a report by investigative reporting team amaBhungane that implicated the company in dodgy dealings (it later said it had been cleared of any wrongdoing) and financial results that showed its earnings growth slowing (though still relatively robust, with full-year headline earnings per share for the year ended 31 July 2017 rising by 16%).

The sell-off may at least in part be the result of a market aversion to risk after the Steinhoff accounting scandal that broke this week, which obliterated the furniture retailer’s share price and cost its CEO, Markus Jooste, his job.

Some stockbrokers have said the JSE should investigate the collapse in the EOH share price. David Shapiro of Sasfin Securities said it is the responsibility of regulators to “give some comfort to shareholders”. He said this is a “highly unusual movement associated with a leak of information”.

The EOH share price has “been losing a lot of altitude lately, but today’s fall is unprecedented”, Shapiro said. “We need some explanation from the company, and the JSE has the right to ask questions and give shareholders comfort. This kind of volatility (Steinhoff included) doesn’t inspire confidence in market regulators.”

JSE reacts

But the JSE’s director for issuer regulation, John Burke, said after markets closed on Thursday that the bourse has “no reason to suspend the share at the time”.

“The JSE has engaged with the company and has been given no reasons that could have led to the decline in the share price,” Burke said.

After markets closed on Thursday, EOH issued a “voluntary statement” in which it said it “remains committed to its purpose of being an ethical and relevant force for good in society, ensuring that all our business is conducted with integrity, transparency and the highest moral standards”.

“EOH would therefore like to reassure the market that the business remains strong, with a great leadership team and strong fundamentals.”

However, it added that it had reached agreement with the former shareholders of Grid Control Technologies, Forensic Data Analysts (FDA) and Investigative Software Solutions to unwind a deal to acquire them, with the unwinding effective from 31 October 2017. It did not say why it reversed the deal or the financial impact of doing so, though a source said the companies had failed to achieve agreed earnings targets.

The Daily Maverick reported on Wednesday that Ipid’s head of investigations told parliament’s standing committee on public accounts that there had been a “clear manipulation of the procurement system” in favour of FDA, a company led by controversial businessman Keith Keating. The Ipid official reportedly said there was a corrupt relationship between FDA and the police service.

EOH’s falling share price is likely to be a major worry for the management team given that the company has traditionally used expensive scrip to help fund its aggressive acquisition strategy. Its ability to buy companies — key to its growth strategy — is now likely to be called into question.

Welfare deal

Investors continue to fret about possible corruption involving the company and government contracts. But on 25 October, EOH said in a statement, published on its website, that there had been no wrongdoing over an earlier report of alleged corruption involving a contract with welfare payments agency Sassa.

Its share price came under considerable selling pressure in July after an article in Business Report, a newspaper supplement and website in the Independent Group stable, repeated earlier allegations of corruption involving the contract with Sassa.

The article was largely a rehash of allegations in a story written by amaBhungane and published by the Daily Maverick earlier this year. On 18 July, EOH issued a statement refuting the allegations in the Business Report article and in the original amaBhungane piece after its share price tumbled by more than 12% during intraday trading on that day.

In the 25 October statement, EOH said it has “engaged in a series of extensive interactions” with amaBhungane. The investigative journalism team had “subsequently confirmed that it has found no evidence of any wrongdoing on the part of EOH”, it said.

“amaBhungane has acknowledged that EOH has been responsive and transparent in the engagement with them,” the statement said. “EOH appreciates the time, effort, professionalism and integrity with which amaBhungane had engaged through this process, and is pleased that the matter has finally been closed and put to rest through an open and transparent process.”

EOH CEO Zunaid Mayet said in July that an independent legal firm had conducted a review and was “satisfied that the insinuations in these reports are false and untrue”.

“I am personally committed to ensuring sound corporate governance, and that we at EOH continue to conduct our business based on the highest ethical standards, while creating value for all our stakeholders,” Mayet said.  — © 2017 NewsCentral Media