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#1 Bullhunter

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Posted Today, 12:10 PM

Analysts hit out at forced selling by EOH directors  
12 DECEMBER 2017 - 05:53 HANNA ZIADY
Forced selling by EOH directors faced with margin calls on geared positions, which collapsed the share price last week, drew heavy criticism from analysts on Monday.

"If I had a board of directors doing that I would fire them. It puts the share price at risk," said Just One Lap founder Simon Brown. Although EOH’s actions were not illegal, they threatened acquisitive growth ambitions, since past acquisitions had been largely funded through share issuances, he said.

Earlier in the day, EOH disclosed that the substantial drop in its share price — 35% on Thursday — was caused by margin calls against equity-financed transactions, including to two EOH directors.

An investor receives a margin call from a bank or stockbroker if the value of a share they have bought with borrowed money falls below a certain level. The investor must then either deposit more money into the loan account or sell the asset to cover the margin call.

Jehan Mackay, CEO of EOH’s public services division, had been forced to sell more than R130m worth of EOH shares just to meet the margin call, suggesting his shareholding in EOH was highly leveraged.

 

Finance chief John King was forced to sell more than R16m worth of shares.

It was risky to take out fixed debt on a floating asset such as shares, said Keith McLachlan, fund manager at AlphaWealth. "I don’t like management teams to have geared positions on the companies they manage, as they then watch the share price rather than focus on their jobs."

Transactions by Mackay and King were done to buy more EOH shares at the time, reflecting their confidence in the company and its long-term prospects, EOH said.

McLachlan said it was good to have management teams who were aligned to the interests of shareholders, but not where a collapse in the share price might lead to an insolvent board, which would no longer qualify to hold directorships.

Cy Jacobs, founder and MD of 36One Asset Management said it was uncommon and "tot-ally undesirable" for directors to take derivative positions on shares in their companies.

King and Mackay could have paid for the shares in cash and did not have to sell, he said.

EOH said it had finalised an agreement to sell Grid Control Technologies, Forensic Data Analysts and Investigative Software Solutions back to their original shareholders. At least one of these businesses, Forensic Data Analysts, and the director of all three companies, Keith Keating, are implicated in an investigation into procurement irregularities involving the South African Information Technology Agency and the South African Police Service.

EOH had decided to unwind the November 2015 purchase of these businesses because of failure to meet performance warranties. This had been expedited by "recent media allegations" against Keating, it said.

The acquisition of the businesses had undergone a "rigorous due diligence process" and annual audits of the companies did not raise any red flag.

EOH had appointed Edward Nathan Sonnenbergs to conduct a "fact-finding review" of the commercial activities of the businesses, the group said. The law firm would have oversight of all material public sector contracts in future. "This is in addition to the internal compliance measures adopted by the board’s audit committee in July this year, which includes a review of EOH’s governance framework," it said.

The market was encouraged by EOH’s announcement, with the share climbing 8.54% on Monday, after a 5.6% gain on Friday, to close at R51.58.

ziadyh@businesslive.co.za


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#2 Investment novice

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Posted Today, 08:55 AM

 They need to change brokers. Their brokers screwed them nicely. Broker never acted on behalf of their clients. You dont drop a share 70% juts to recover margins. Surely they cud have sold slowly into the market and not hit the bids consistently as the price fell. Some thing more to this i promise.

this is rather suspicious hey?, lets wait and see what the investigative journalists are able to unmask. JSE seems very quiet on this, they should have investigated further, perhaps biting their tongue for now


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#3 Polly

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Posted Yesterday, 08:57 PM

Jehan Mackay and CFO John King had to sell R143 million Rand worth of shares to meet margin calls.

 

Eina!

 
 

 

 They need to change brokers. Their brokers screwed them nicely. Broker never acted on behalf of their clients. You dont drop a share 70% juts to recover margins. Surely they cud have sold slowly into the market and not hit the bids consistently as the price fell. Some thing more to this i promise.


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#4 Bullhunter

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Posted Yesterday, 07:23 PM

Jehan Mackay and CFO John King had to sell R143 million Rand worth of shares to meet margin calls.

 

Eina!

 
 


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#5 Investment novice

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Posted Yesterday, 12:53 PM

traders game-----perhaps we may see some end of day trading and the price all over the place. lots of energy with this share- suppose we will see some ups and downs throughout December as the truth is exposed...


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#6 Bullhunter

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Posted Yesterday, 12:08 PM

Just over half of the purchase price of FDA, GCT and ISS was paid for through the issue of shares, which at the time were trading at about R150.

It is estimated that a fifth to a quarter of EOH’s business came from the public sector.

Founder and former CEO Asher Bohbot said on Friday he had not sold an EOH share in "many years".


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#7 Bullhunter

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Posted Yesterday, 11:27 AM

normal circumstances they would have as they bought in 2015. But these okes are clever. Probably had in the purchase and sale agreement if profits not on target can reverse transaction and this seems to be the case. if so no liability as all will be written back imo. 

 

But still more to this i feel. Cant get out so easily.  Anyway i sold out today at R60.00. Average cost R34.00

 

Also sens blaming margin calls for that fall....Hell im not an idiot EOH!! Either you all playing dumb, ignorant or you all plain stupid to think market will believe that margin call fall stuff.

 

A classic forced sale of shares by financial institutions against equity financed transactions.On Friday, it collapsed to R26.80 and then recovered to 46 in no time. 


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#8 Bullhunter

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Posted Yesterday, 11:08 AM

Paywall so that sucks... post the article...  :ph34r:

Raid leads EOH to rethink purchases  
 
10 DECEMBER 2017 - 00:32 ASHA SPECKMAN AND PERICLES ANETOS
Governance structures at EOH, once a darling of JSE stocks, had to be reviewed and strengthened after a business that EOH planned to buy was implicated in corruption, its chairman Sandile Zungu said on Friday.

EOH was in the process of reversing the purchase, made in 2015, of Forensic Data Analysts, Grid Control Technologies and Investigative Software Solutions owned by Keith Keating and other shareholders.

The deal was subject to profit warranties being met. But this week the home of Keating was raided by the Independent Police Investigative Directorate as part of an investigation into the irregularities in contracts that Forensic Data Analysts had with the State Information and Technology Agency (Sita) and the police.

 

Zungu said the EOH board planned to meet early this week to discuss, among other things, the possible financial implications of EOH's decision to reverse its 2015 purchase of three businesses.

Earlier this year EOH was implicated in a report by investigative journalists at AmaBhugane of irregularities in social grant IT contracts worth millions of rand, but it was cleared of wrongdoing.

The developments concerning Keating led to the EOH share price falling 34% on Thursday, but it recovered some losses before the close on Friday. EOH said Keating's businesses failed to meet profit warranties that had been a condition of the deal.

Zungu said: "At the level of governance structures in [EOH] clearly there were weaknesses. We need to strengthen the governance structure so that even the possibility of such uncorroboratable allegations [related to Keatings' alleged irregular contracts with Sita and the police] must not even arise. The governance issues arising from that need to be taken to the next level," he said, without elaborating on the steps that would be taken.

EOH, which listed on the JSE in 1998, has a quarter of its operations outside South Africa but the bulk of its revenue is generated domestically from services that include IT infrastructure, apps, automation, legal services and hospital administration services in the public and private sector. It operates in 50 countries with about 12500 employees.

Ryan Seaborne, a money manager at the 36One Asset Management, told Bloomberg the company was suffering from a lack of corporate governance and poor communication which created the impression that it was "concerned about something could come out in the public".

Seaborne said EOH had to clarify the situation over the investigation. "Alternatively I would not buy a single share. They need to reconstitute the board," he said.

Keith McLachlan, a fund manager at AlphaWealth, said factors weighing on the share price included poor disclosure and questions around the group. The unexpected departure of founding CEO Asher Bohbot in June after 19 years contributed to the mistrust, he said.

The unease among investors this week was partly stoked by the collapse of Steinhoff, whose investors rushed to sell stock.

Ron Klipin, a portfolio manager at Cratos Wealth, said the market was concerned that EOH senior management were not buying shares. But Zungu said he planned to take up further stock "with my own money".

Klipin said the deals Keating did with Sita and the police had dented credibility.

"It's the latest thing that has emerged that appears to have got the market rattled," he said, adding that market was more risk averse following the Steinhoff debacle.

The JSE had been in touch with EOH, according to John Burke, director of issuer regulation at the bourse.

Burke said EOH "confirmed to the JSE they were not aware of any price-sensitive information which would require an announcement".

Based on the unusual volatility in the share price, the company had issued a voluntary announcement, he said. The JSE would act on any reports or identification of potential market abuse.

Zungu said the audit committee "will inform the board what next to do". The audit committee would review the impact of reversing the purchases.

"We want to go back to the investor community and public at large with detail," he said.

EOH was unlikely to collapse, he said.

"The underlying business is fundamentally very strong. We have strong businesses. We do not have debt facilities that can be pulled by a bank. We have no bonds that will mature. We are basically ungeared," said Zungu.

The company was talking to shareholders. "I don't think people must sell in fright because they will be disadvantaging themselves. We need to quantify issues, losses and that's what we'll do next week."

Sita said it had handed over the relevant information to Ipid.

"We are committed to collaborate, support and work with all government institutions, to ensure that the rule of law applies equally to all," it said. It is not conducting an internal investigation
.


Edited by Bullhunter, Yesterday, 11:09 AM.

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#9 Polly

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Posted Yesterday, 10:31 AM

hi there, if there is any wrong doing with the three entities- does EOH still carry the liability?

normal circumstances they would have as they bought in 2015. But these okes are clever. Probably had in the purchase and sale agreement if profits not on target can reverse transaction and this seems to be the case. if so no liability as all will be written back imo. 

 

But still more to this i feel. Cant get out so easily.  Anyway i sold out today at R60.00. Average cost R34.00

 

Also sens blaming margin calls for that fall....Hell im not an idiot EOH!! Either you all playing dumb, ignorant or you all plain stupid to think market will believe that margin call fall stuff.


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#10 Investment novice

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Posted Yesterday, 10:12 AM

hi there, if there is any wrong doing with the three entities- does EOH still carry the liability?


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#11 Investment novice

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Posted Yesterday, 08:36 AM

two views emanating- one view- cheap and an opportunity to buy and a second - increased suspicion especially around vagueness of ceo communication.

may see a dip this week based or a further increase in share price - I would hazard a dip or remaining stead rather than an increase,,,,what are your thoughts.....has any one read the article referred to below


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#12 PlatinumWealth.co.za

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Posted 10 December 2017 - 06:31 PM

EOH response to price fall:

 

https://www.business...hink-purchases/

Paywall so that sucks... post the article...  :ph34r:


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#13 Bullhunter

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Posted 10 December 2017 - 09:35 AM

EOH response to price fall:

 

https://www.business...hink-purchases/


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#14 Bullhunter

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Posted 08 December 2017 - 05:30 PM

The Group has also reached agreement with the former shareholders of Grid Control Technologies Proprietary Limited, Forensic Data Analysts Proprietary Limited and Investigative Software Solutions Proprietary Limited, to unwind the transaction effective 31 October 2017.

 

These are the guys under investigation by IPID. How much do they add to EOH's HEPS?   

The GCT group of companies was acquired with effect from 18 November 2015 for R868 million.


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#15 Bullhunter

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Posted 08 December 2017 - 04:31 PM

24/11/2017. PSG ASSET MANAGEMENT INCREASES SHAREHOLDING IN EOH TO 5.02%. They must be cheesed off.

Unit trusts increased their holdings by 27% in the quarter ending September 2017, mostly PSG and Old Mutual.


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#16 SoleTrader

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Posted 08 December 2017 - 02:23 PM

The company is where Pinnacle was some time back. Not a bad nibble at these levels. 


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#17 Bullhunter

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Posted 08 December 2017 - 12:47 PM

The trigger that lead to Mackay selling off on 1st December following the publication of this article in the Daily Maverick on the 27th November?

 

 https://www.dailymav...bn-expenditure/

 

and this one earlier on 8th November:

https://www.dailymav...eeps-on-giving/


Edited by Bullhunter, 08 December 2017 - 12:50 PM.

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#18 Investment novice

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Posted 08 December 2017 - 11:29 AM

fantastic, predictable and now to take profits.....

will buy again next week, wont be greedy.

thank you - unit trusts and brave souls

 


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#19 Polly

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Posted 08 December 2017 - 11:14 AM

squeeze time.


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#20 Polly

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Posted 08 December 2017 - 11:00 AM

The Group has also reached agreement with the former shareholders of Grid Control Technologies Proprietary Limited, Forensic Data Analysts Proprietary Limited and Investigative Software Solutions Proprietary Limited, to unwind the transaction effective 31 October 2017.

 

These are the guys under investigation by IPID. How much do they add to EOH's HEPS?   

bought  the 3 companies in 2015. very conveniently dissociated itself from them and reversing  transaction.

Does not work like that. Its your subsidiary from 2015 and whole group tarnished irrespective if you reverse transaction.


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