Transaction Capital’s exposure to the embattled taxi industry, which has been hard hit by high interest rates and fuel prices, saw the group’s share price plunge by as much as 40% on Tuesday after the company painted a troubling picture of its erstwhile cash cow, SA Taxi.
The group’s stock plunged 40.17% to R16.83 by midday after saying it expects core earnings per share from continuing operations in the half-year to end-March to fall by more than 20% but by no more than 50%. It ended 37.18% weaker.
The firm, which also owns WeBuyCars, said in a trading update on Monday afternoon 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 its bad debt provisions for SA Taxi by R1.8bn, taking provision coverage from just over 4% in 2022 to about 15%.
It 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.
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%.
CEO David Hurwitz said it was important to tackle the issues facing SA Taxi, and to reset this business for 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,” he said.
He added that rebasing SA Taxi will entail a focus on higher quality credit risk loan origination, resulting in a lower absolute quantum of loans originated against repossessed and refurbished “quality renewed taxis”.
In a frank assessment, the company, whose biggest shareholders include the Public Investment Corporation and Coronation Fund Managers, 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. It had based its recovery assumptions on the expectation that the taxi industry and commuter density would recover from the effects of Covid-19.
“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. “The industry’s profitability remains stressed due to stubbornly elevated fuel prices, vehicle price increases, sharp interest rate hikes, persistently low commuter volumes and the lack of corresponding fare increases.”
The price of a Toyota Hi-Ace has gone up 46% since 2015, with taxi owners now paying R6,000 more in instalments per month than they did eight years ago. More than 90% of the minibuses that SA taxi finances are Toyotas. The recommended retail price of a Toyota HiAce diesel vehicle in September 2022 was R528,801.
The daily power cuts also mean taxis complete fewer trips and bring in less money, which affects their ability to repay their car loans.
“Load-shedding has also increased traffic density causing longer commute times, resulting in a reduction in the number of trips completed by taxi operators. This has resulted in a systemic change, reducing our ability to serve this lower-end segment of the industry,” it said.
The minibus taxi industry remains indispensable to SA’s economic productivity, with most citizens relying on public transport. According to the Stats SA 2020 Household Survey, taxi operators transport more than 15-million commuters a day.
Taxi association Santaco, which owns 25% of SA Taxi, said the increasing fuel price cannot be absorbed and will have to be passed on to commuters.
“Santaco wish to extend a warning to government that this will result in revolt from the commuters unless government and the fuel industry come to an urgent understanding with the taxi industry on this matter.
“The country will [face] a high risk of protests and revolt by … commuters,” said Thabisho Molelekwa, the chief strategic officer of Santaco.
Molelekwa said the industry had tried unsuccessfully for a year to secure a meeting with the department of transport to thrash out a bailout.
Patrick Mathidi, head of equities at Aluwani Capital, said SA Taxi’s clients are facing a few challenges, including lower commuter volumes largely due to worsening unemployment.
“I also think the taxi commuter market is getting saturated with competition from the e-hailing services that can go anywhere,” Mathidi said.
Commenting on the share price decline, Mathidi said: “The share price reaction does appear overdone. However the share … was expensive. So given these headwinds, it’s not completely surprising that the share price is under pressure.”
Alec Abraham, equity analyst at Sasfin Securities, said: “I am not surprised by the deterioration in SA Taxi as it is not a secret that the taxi industry has struggled to recover to prepandemic levels. What is a bit of a surprise is the seemingly substantial quantum of the impact on Transaction Capital’s earnings. The share price decline is reflecting the expected decline in earnings for the period, as guided by management.”
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