Our opinion on the current state of AYO

AYO is a black-owned technology company that was spun out of AEEI and in which AEEI still holds 49,4%. There were suspicious circumstances with a massive R4,3bn investment by the Public Investment Corporation (PIC) which has been the subject of a court action by the PIC and finally settled on 31st March 2023 with the AYO paying the PIC R619m.In effect the PIC pensioners appear to have been fleeced out of billions of rands. Ayo shares listed at R43, fell to as low as 105c, but is now at around 305c after their latest results. Volumes traded are very thin, with many days where it does not trade at all. The company has 1400 employees. What income it got appeared to be from interest on the remainder of the PIC loan. We find this share difficult to assess and consider it potentially dangerous, especially after the testimony from the former financial director, Siphiwe Nodwele, before the Mpati Commission, that the company is probably only worth R700m and the testimony of Naahied Gamieldien, previously the CFO, who said she had to "...adjust margins to increase the company's profit" - which resulted in the profit doubling. In October 2019, the Financial Sector Conduct Authority (FSCA) conducted a raid on Surve's offices as part of an on-going investigation. FNB has closed Ayo's bank accounts at Ayo Technology Solutions siting reputational risk. Ayo is opposing this in a court action and, in an announcement on 30th April 2021, claims to have put in place "alternative third party solutions" to enable the company to continue trading. We would advise investors to stay well clear of this share until the uncertainties surrounding the Mpati commission can be resolved. On 1st June 2021 British Telecom (BT) announced that it was severing ties with Sekunjalo due to " misrepresentation of facts" before the standing committee on finance in parliament. On 10th February 2022 the JSE announced that two Ayo directors had been barred from being a director of a listed company for five years because of failing to carry out their oversight duties leading to incorrect, false, or misleading financial statements. On 22nd December 2022, the JSE published a censure of Ayo because of their involvement in related party transactions without comply with the JSE rules on such transactions. On 24th March 2023 the company announced that it had reached an undisclosed out-of-court settlement with the Public Investment Corporation (PIC), but it seems unlikely that the PIC will recover the R4,3bn which it advanced to Ayo. In its results for the year to 31st August 2023 the company reported revenue up 28% and a headline loss per share of 176,46c compared with a loss of 60,25c in the previous year. The company said, "The Group’s gross profit percentage decreased from 22% in the prior year to 16% in the current year due to lower margins achieved in the managed services divisions as result of less service contracts and more procurement of equipment distribution contracts in the public sector". We cannot recommend this share to private investors because we do not trust its reporting. On 6th September 2023 the JSE publicly censured a director of Ayo, Khalid Abdulla, for breaching the listing requirements and failing to exercise his fiduciary duties. He was fined R2m and Ayo was fined R6.5m.