Transaction Capital, which has lost more than half of its value in two days, has found itself on the defensive trying to explain why its CEO sold off a substantial block of his shareholding just months before the company issued a dreary trading statement showing its key division SA Taxi was in a morass.
CEO David Hurwitz’s family trust in December 2022 sold R50m of the group’s stock in three tranches, dumping 1.6-million shares, or 40% of his holding in the company.
The group’s share price plummeted nearly 40% on Tuesday, followed by another 17% drop on Wednesday, wiping off more than R10bn of the company’s value in a matter of 48 hours.
The plunge in the group’s value followed its trading update on Monday after close of business showing that SA Taxi was in trouble and the group had miscalculated its prospects.
The firm, which also owns WeBuyCars, said in a trading update that due to pressures facing SA Taxi, it had to convert the existing intercompany loan of R2bn from the group holding company into equity. It also increased bad debt provisions for SA Taxi by R1.8bn, taking provision coverage from just more than 4% in 2022 to about 15%.
The group also said it expects core earnings per share from continuing operations in the half year to end-March to fall more than 20% but no more than 50%.
It also announced that Sean Doherty will step down as CFO of Transaction Capital and Trans Capital Investments with effect from June 1 and will take on the role of deputy CEO of Mobalyz, its mobility platform.
Overplayed resilience
SA Taxi contributed 70% of group revenue four years ago. This has fallen rapidly, with second-hand car dealer WeBuyCars now contributing 43% to group revenue and business services firm Nutun 33%.
The company said it had initially overplayed the resilience of the taxi industry. At the time it presented its results for the 2022 financial year, Transaction Capital had anticipated that SA Taxi’s earnings in 2023 would be on par with those of 2022.
The company said it got it wrong, and the headwinds that face the taxi business ran deeper and had now become more structural in nature.
“At the start of 2023 it became apparent that the minibus taxi environment was unlikely to rebound at a rate in line with our original expectations,” the company said.
Taxi owners are struggling to keep up with their monthly repayments due to high interest rates and fuel prices and a surge in prices of minibuses. This has seen Transaction Capital repossess more cars than it did in previous years.
The sale of 40% of his interest in the Group in December has raised questions over whether Hurwitz knew what was coming and took evasive action.
Approved sales
However, Transaction Capital on Wednesday defended the sale of the shares. It said Hurwitz had informed the chairperson of the company and the company secretary that his family trust was in breach of “certain covenants relating to debt it held from its bankers against the Transaction Capital shares owned by the trust”.
“In considering the matter and after consulting with some of the other Transaction Capital directors, the chair approved the share sales after noting that the results for the year ended September 30 2022 had been released to the market and there was no price-sensitive information or inside information of which he or the other directors consulted, were aware that should preclude permission to deal,” the company said in a statement.
It added that the trust retains the balance of 2.4-million shares it holds in the group.
After listing in 2007 at a share price of R8, it reached as high as R52.41 in April 2022. The fall on Wednesday was the fourth-biggest in its history, with the share price closing 17.37% lower at R14.60, a level last seen in August 2020.
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