The shares of Transaction Capital, owner of WeBuyCars and a taxi finance business, are down more than 88% from their high, falling more than 16% on Tuesday after the company said headline losses to end-September will be far greater than previously predicted.
In March, the group said headline losses for the full year would exceed 157.7c a share or fall by as much as 172%. It is now projecting an even worse performance as many taxi owners have not repaid vehicle loans.
The Transaction Capital share closed at R5.85 on Tuesday, down from a peak of R52.50 in April last year.
CEO David Hurwitz is stepping down in December though he denies he was pushed out, saying the parting is “amicable”. One of the founders, Jonathan Jawno, whose shareholding has lost significant value, will take over the reins of the company from 2024.
Hurwitz sold R51m in shares in December before the value destruction.
The group’s SA Taxi business contributed to the R1.9bn half-year losses to end-March, losing the group almost R2.1bn.
CEO of Protea Capital Management JP Verster said: “The viability of SA Taxi, which is their subsidiary with the largest debt burden, is under threat. But that is a far cry from the whole group at risk of going bust.
“It will be interesting to see how developments play out over the next six months, and if they can turn SA Taxi around. If not, Transaction Capital will either need to put the division into business rescue or embark on a rights issue to further fund it.”
Biggest earner
The company has more than R23bn in debt and a market capitalisation of R4.47bn.
Its biggest earner is an almost 75% stake in second-hand dealer WeBuyCars followed by debt collector Nutun. The future of these divisions is not at risk but the survival of SA Taxi, its biggest debt holder, is no longer guaranteed.
Monthly taxi instalments have risen almost R6,960 since 2015 as the rand has weakened and vehicle prices rose. Additionally, the petrol price keeps increasing, but commuter fares haven’t gone up much.
In a weak economy commuters are travelling shorter distances or taking fewer trips and taxis are spending a longer time in traffic due to the mayhem caused by load-shedding.
The group increased impairment for bad debt by taxi owners to R2bn in March.
Its model of repossessing taxis that are in arrears and refurbishing and reselling them is not as robust as before as it presently seizes more taxis monthly than it can resell.
Hurwitz, who is still doing media interviews, said he believes SA Taxi can be saved as it works with multiple banks and development funders to restructure its balance sheet.
What this means, in part, is the taxi division needs to repay its lenders more slowly as taxi owners struggle to repay their loans.
The division however, is unlikely to turn a profit in at least the next three years.
Hurwitz said, “It’s really important to get this business to a sustainable base that it can operate out of. We hope to operate for a period of a few years so we can generate cash.”
Debt terms
Transaction Capital has set up a committee comprising executives, independent nonexecutive directors and external advisers under Chris Seabrooke, a major shareholder and chair, to restructure the taxi division’s balance sheet.
The committee has had to meet multiple banks and foreign development finance organisations to convince them to extend debt terms.
Chief investment officer Mark Herskovits said, “Having many different funders means having many different engagements,” individually and in groups. He said progress has been made.
“It’s not always easy. Obviously people aren’t necessarily delighted with the discussions that need to be had. But there is a recognition of the importance of SA Taxi as a business in SA, the role that it plays.”
One of SA Taxi’s biggest problems is that they lack any new lending to grow their business and refinance bad debt.
With existing lenders they have enough funding for taxis and running the business until about March next year.
If SA Taxi are able to restructure their entire balance sheet, the division would have access to $60m (R1.1bn) from an American development finance lender, but this a contingent on a major agreement.
The fall in share price on Tuesday might also reflect that WeBuyCars’ earnings are expected to be about 20% lower than they were in 2022 as consumers are buying cheaper cars.
Nutun and Transacton Capital’s call-centre business also made less money than initially expected, with the latter earning foreign currency from Australia, the UK and US.
Correction: September 12 2023
This story has been updated to explain that Heps for the year to end-September will fall more than previously guided.
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