Fund managers are dubious that Transaction Capital’s turnaround plan for its taxi business will succeed, though the company is promising better things in financial 2024 as it grows its debt collection business Nunun and refocuses WeBuyCars.
This week the company reported a R1.9bn loss for the six months to March and expects muted growth for the rest of the financial year.
The share price plummeted 35% on the news, wiping out R3bn of the company’s market value, despite the company having issued a warning in March about the dire situation at taxi financing business SA Taxi and pressure on WeBuyCars.
Transaction Capital share price has lost 77.3% since January when it was trading at R33.
CEO David Hurwitz told Business Times this week he had been taken aback by the drop in the share price. “We gave the guidance in March and also had investor presentations where there was a lot of focus on understanding our capital position and debt funding position, and what we plan to do at SA Taxi. We didn’t anticipate significant reaction. We didn’t feel there was anything new [in the results] and we’re not quite sure and clear what the market is not happy with.”
Makwe Masilela, founder of Makwe Fund Managers, said the market appeared to be unconvinced by Transaction Capital’s plans to restructure SA Taxi.
“Plans are great but unfortunately the taxi industry challenges are beyond Transaction Capital — rising interest rates and fuel costs, lower commuter volumes and the inability to increase fares for cash-strapped commuters,” he said.
Hurwitz acknowledged these problems and said it had become harder to find creditworthy operators to finance, which had shrunk loan origination. The company was unable to sell and refinance all repossessed taxis.
Hurwitz said it was imperative to quickly restructure SA Taxi’s business model.
“These adjustments are necessary to set a solid base for future growth. We anticipate SA Taxi returning to profitability during the 2024 financial year.
“Continued support from debt funders is required to sustain SA Taxi’s lending operations. All existing facilities remain available, and new facilities are under negotiation,” he said.
The taxi industry is in disarray, and we will be staying clear of anything that touches it. There are a few things happening in that industry that Transaction Capital is not talking about
— Casparus Treurnicht, Gryphon
Casparus Treurnicht, portfolio manager and research analyst at Gryphon Asset Management, said investors were wondering what sustainable earnings could be expected from Transaction Capital.
“Investors do not like uncertainty and there are a few question marks about the credit market in South Africa. Capitec also seem to be making more aggressive provisions. Foschini is also getting more conservative [in] advancing credit for sales.
“I believe the taxi industry is in disarray, and we will be staying clear of anything that touches it. There are a few things happening in that industry that Transaction Capital is not talking about,” he said.
Masilela said like most companies, Transaction Capital needed improved macroeconomic conditions. “Probably it’s good for them to have started working on themselves so that they will be ready when the economy improves.”
Treurnicht said South Africa “is entering a phase where we need to turn things around from a macro point of view and we are not moving fast enough. I think investors, especially foreign investors, are getting scared of investing locally.”
At WeBuyCars, Transaction Capital has shifted focus to low-end cars, in line with consumer demand. WeBuyCars sells around 14,000 vehicles a month.
Hurwitz said WeBuyCars’ “agile” business model and fast stock turnover had enabled it to respond quickly to market changes. The business was now positioned to deliver stronger results over the rest of the year, though performance was still expected to be down when compared with financial 2021 due to lower average selling prices.
“Nutun and WeBuyCars are exceptionally well positioned within their respective markets. We believe these divisions will continue generating strong earnings growth over both the medium and long-term. Both WeBuyCars and Nutun have strong balance sheets.”
Nutun runs call centres that collect debt on behalf of banks and retailers in South Africa. It is also expanding its customer service offerings, including fielding queries, to the UK, Australia and the US.
Revenue from the business rose to R1.9bn from R1.2bn in the previous period, lifted by offshore investments, which accounted for 44% of that growth. During the six months to March, Nutun hired 2,602 new employees.
Hurwitz said the financial pressure consumers were facing, including debt defaults, was a concern for the company but diversifying into new markets would help to cushion the impact.
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