There’s a certain irony in iOCO’s ambition to revive the acquisition-led growth strategy that once made the group, formerly known as EOH, a JSE market darling. After years of restructuring and balance-sheet repair, it finally has the financial muscle to go shopping again. The catch is that its depressed share price makes the old roll-up formula harder to replicate, while making buybacks a tempting alternative for its growing cash pile.
Still, it is an enviable dilemma compared with its troubled past. Results for the year to July 2026 show just how far iOCO has come since fraud and corruption scandals, ill-judged acquisitions and a mountain of debt nearly brought it to its knees.
Revenue edged up just 2.7% to R5.73bn, but adjusted ebitda surged 21% to R624m, while operating profit rose 15% to R483m. Net profit climbed 39% to R357m, lifting headline earnings per share (HEPS) by 42% to 57c.
At around R4 a share, iOCO trades on just seven times historical earnings. That’s a modest rating for a business delivering strong profit growth, though sustaining that momentum will be another matter.
David Eborall, portfolio manager at SaltLight Capital Management, credits iOCO’s recovery to its new leadership. “iOCO’s turnaround has been impressive. [CEO] Rhys Summerton has brought clarity and discipline to what is ultimately a resilient business.”
Summerton’s turnaround strategy has rested on three pillars: cutting costs, decentralising operations and improving capital allocation. Since July 2024, the group has stripped out R480m in costs, including R400m at head office, while reorganising into 12 specialist divisions under a model he calls “radical autonomy”, with each managing director accountable for their division’s performance.
The results speak for themselves. Every operating business is now profitable, compared with combined losses of R228m from underperforming businesses in FY2023. The balance sheet has also been repaired, with sharply lower debt and interest costs, R417m in cash and more than R600m in additional available liquidity at year-end.
But the easy gains from restructuring are running out. Summerton reckons 80%–85% of the cost-cutting is complete, with little fat left at head office. Indeed, he cautions that operating margins could flatten or even decline as iOCO reinvests in growth.
That matters because, despite some scalable software and cloud offerings, much of iOCO’s revenue still comes from labour-intensive activities such as consulting, software development and managed services, where growth generally means hiring more people.
Eborall agrees that the focus must shift. “The next leg of the turnaround will need to come from organic growth or acquisitions. After all, there is only so much fat you can cut before you hit bone.”
Double-digit goals
For now, organic growth remains sluggish. Eborall says this reflects the pressure on IT budgets across South African corporates. Revenue at IT Services, the group’s largest division, rose about 4%, while Operational Technology contracted as industrial customers tightened their spending. International operations also struggled amid the fallout from the Middle East conflict.
Summerton nevertheless has his sights set on double-digit revenue growth, driven by a combination of organic expansion and acquisitions.
Which brings iOCO back to the old EOH playbook.
In its heyday, EOH became a technology powerhouse by buying other businesses. Summerton says acquisitions accounted for roughly two-thirds of its historical growth, with about 15 significant deals between 2000 and 2015.
The valuations from those glory days make for striking reading. In 2013, EOH earned R331m of net profit and was worth R7.9bn on the JSE. A year later, profit had risen to R492m and its market value to R14bn.
Today, iOCO generates R357m of net profit, yet commands a market capitalisation of only R2.5bn.
Admittedly, the businesses and market conditions are not directly comparable, but the contrast shows just how far the former market darling has fallen in investors’ estimation.
Reviving the old EOH playbook won’t be straightforward. Back then, the group could use its highly rated shares to buy smaller businesses trading on much lower earnings multiples. A company valued at 20 times earnings, for example, can acquire one on eight times earnings using newly issued shares and immediately boost earnings per share, even before extracting any operational synergies.
This valuation arbitrage was a powerful engine of EOH’s acquisition-led growth.
Today’s iOCO, trading on just seven times earnings, no longer has that luxury. Some potential targets may command higher multiples than iOCO itself, making scrip-funded deals dilutive rather than accretive.
Cash or debt-funded acquisitions remain options, but paying a premium for another business is difficult to justify on purely financial grounds when management believes iOCO’s own shares are so cheap. Technology, however, rarely stands still, and acquisitions can help fill gaps in the group’s offerings. As Summerton puts it: “You must remain relevant to clients.”
That helps explain iOCO’s return to dealmaking. During FY2026, it acquired MySky, an enterprise networking and managed infrastructure specialist with partnerships involving Hewlett Packard Enterprise and Fortinet. The deal carried a recognised value of R64.5m, including contingent consideration. MySky has an ebitda margin of about 17%, with just nine major customers accounting for roughly 80% of its revenue.
In September, iOCO followed that up with the acquisition of Astraia, a cloud-based enterprise software and financial integration specialist that generates about 90% of its revenue from recurring business. The deal involved R10.5m upfront, with further payments linked to performance.
The strategy is to snap up smaller, founder-led technology businesses and use iOCO’s 3,000-strong customer base to accelerate their growth. Its decentralised model may limit traditional cost savings from eliminating duplicated management and administration, but the bigger prize lies in cross-selling services across the group.
Summerton also hopes to improve acquisition returns through earn-outs, which link part of the purchase price to future performance, and by using the group’s accumulated tax losses where permitted. But price discipline remains paramount. Indeed, he acknowledges that due diligence sometimes reveals potential targets to be less attractive than iOCO’s existing businesses, strengthening the case for buybacks.
With Summerton favouring acquisitions and buybacks over dividends, the two will be competing for what promises to be a substantial cash pile.
Management forecasts free cash flow of R650m in FY2027, made up of R450m from underlying operations and R200m from an expected working-capital release. That works out to just over R1 a share, implying a prospective free cash flow yield of roughly 26% at the current R4 share price. Even excluding the one-off working-capital boost, the underlying yield approaches 18%.
For FY2028, management expects R500m in free cash flow and aims to shrink the share count by almost 20%, from about 620-million to 500-million, again generating roughly R1 a share.
At R4, buying back those 120-million shares would cost about R480m. Even with profits unchanged, the smaller share base could boost earnings per share by 24%, before financing effects.
Eborall welcomes the clear forward guidance. “If management delivers on these targets, the business could generate free cash flow over the next two years equivalent to roughly 50% of its current market value (as of writing). That’s a lot of cash for a business the market still seems reluctant to love.”
The AI twist
There is a caveat, however. FY2026 net operating cash flow amounted to just R239m after working-capital movements, interest and tax. Management attributes part of the shortfall to year-end payment timing, but investors will want to see the expected reversal materialise.
Nor can stronger revenue growth be taken for granted. Summerton says more than 60% of turnover is recurring, providing a degree of visibility. But that still leaves up to R2.3bn in annual revenue dependent on new projects and repeat business. Encouragingly, iOCO secured R2.1bn in new multiyear contracts during FY2026.
Artificial intelligence adds another nuance. Summerton estimates that AI has already improved engineer productivity by 50%–60% in the group’s Egyptian operations, where an estimated 77% of engineers actively use the technology.
But greater productivity is a double-edged sword for an IT services business. AI could reduce demand for developers and contractors, undermining the traditional “bodyshop” model. The question is whether iOCO can pocket the efficiency gains through higher margins or whether customers will capture them through lower prices and fewer billable hours.
Eborall is more upbeat. ”We are, perhaps unfashionably, of the view that system integrators such as iOCO stand to gain from AI rather than be eaten by it. Corporates will need plenty of hand-holding as they navigate this seismic technology shift, and iOCO is well placed to help.”
Ultimately, iOCO’s investment appeal now rests less on restructuring than on how wisely it deploys its cash. Investors will be hoping Summerton can repeat his success as an activist investor at listed industrial group Argent, where he helped steer capital towards acquisitions of undervalued UK businesses, contributing to multibagger returns for shareholders.
