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Trade Alert: Buy A Pullback On EOH

by / / Trade Ideas

Once a darling among South African investors, Enterprise Outsource Holdings also known as EOH has seen it’s share price and to a certain extent – it’s reputation – take a knock over the last 18 months as investors became concerned over it’s growth prospects as well as market speculation that the company had been able to obtain certain government contracts via a so-called “middle-man”.

On 15 May 2017 it was then announced that long time CEO Asher Bohbot had stepped down with immediate effect, further raising concerns among investors about the company’s prospects as well as whether the company would be able to sustain the rate of growth that it had achieved since coming to market.

Exacerbating pressure on the share price was forced selling by directors in December 2017. In a Stock Exchange News Service (SENS) announcement the company stated that the high volumes of shares traded and the price drop were caused by “the forced sale of shares by financial institutions against equity financed transactions to various individual shareholders, including two EOH directors. Over four days, between Tuesday 5 December and Friday 8 December some 2.5 million EOH shares were sold by Tactical Software Systems (TSS) for a total of R127m.

On 8-Dec-2017 the shares hit a multi-year low of R26 but has since recovered to above the R60. Since 15-Dec-2017 the share has been consolidating in a sideways to downward range forming a bull flag. On Friday 23-Feb-2018 we saw a massive breakout with the price gaining 13% on the day while the last two days has seen a small consolidation take place.

With global markets softer this morning, we could see the share give back some gains, providing an opportunity for traders to take a buy/long position on this high probability setup.

For this trade idea I would consider it a medium term buy. The company is due to report January 2018 Interim Results around Thursday, 15 March 2018.

Trade Levels:

I am expecting or would prefer the share to pull back and re-test the breakout level.

Buy EOH below R70 (66/70)
Stop-loss: R57.00
Take Profit: 80.00 and 84.00
 

If you are looking to participate in some of these trade ideas, please drop the trading desk an e-mail.

 

Lester Davids

Lester Davids

Trading Desk Analyst at Unum Capital
Lester started his career as an intern in the Group Schemes Risk Management department of Old Mutual in 2006 after having attained his National Diploma in Internal Auditing from the Cape Peninsula University of Technology. After a year and four months of service he took up the opportunity offered by Deloitte's Risk Advisory Services for a three-year contract as a Trainee Internal Auditor.

Whilst searching for employment after his had contract expired, he made the decision to document his ideas for his personal passion which was financial markets with a view to build a public profile and record of all work.

His passion for investment and market-related content dates back to his love for reading having started to notice the financial market data alongside the sports pages as a university student in 2004.

Lester is Trading Desk Analyst and has been with Unum Capital since July 2016.
Lester Davids
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