Transaction Capital is bullish about the prospects of its crown jewel, WeBuyCars, saying on Monday that the second-hand car dealer has an unassailable dominance in the market.
However, the group warned in a trading update that WeBuyCars experienced some margin pressure in the first quarter of financial year 2023 and expects earnings to decrease for the half-year to end-March, though not more than 20%.
“This should be considered against an extremely high comparator base in the first half of the 2022. Despite this, we are confident that the business will grow earnings for the [financial year] 2023. The long-term structural elements supporting the business model remain robust. WeBuyCars’ market position is unassailable and the business continues to increase market share,” the group said.
Transaction Capital last year outlined its blueprint for WeBuyCars’ dominance, saying the division is aiming for a 15% share of the second-hand car market, which trades about 1.2-million passenger cars every year.
The WeBuyCars brand is now a cash cow in Transaction Capital’s portfolio, accounting for 43% of its profit in the year to end-September 2022.
Competition in the second-hand market is set to heat up after industrial conglomerate Bidvest last week announced an expansion of its automotive division with a second-hand vehicle brand to be launched in April, in a move to bring scale and diversity to the unit.
The reconfigured automotive segment will include its existing McCarthy business, with the addition of two subdivisions including an independent motor retail segment that will see a new second-hand brand launched in April under its umbrella.
Naspers-owned Prosus decided in March to cut ties with its vehicle-trading business OLX Autos, citing high costs and a slowdown in the second-hand car market dominated by WeBuyCars.
Transaction Capital warned that the headwinds facing its taxi business model have now become more structural and that the business is unlikely to recover to pre-Covid-19 levels in the short to medium term.
“In the short term, we believe it is prudent to acknowledge and decisively tackle the issues facing SA Taxi, and to reset this business for future growth. While we understand that this does come at a cost to our upcoming half-year results, and will weigh on the full-year outlook to September 2023, we are confident that the group’s swift response in rebasing this business will give it the operational, financial and strategic flexibility to recover and grow,” CEO David Hurwitz said.
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