Shares in Transaction Capital, the holding company for SA Taxi and used-car firm WeBuyCars, plunged 35% on the JSE yesterday after it reported a worse-than-expected fall in half-year earnings, with analysts saying this was because of uncertainty regarding the group’s future cash flows.
The share closed 35.07% lower on the JSE yesterday at R7.11.
Transaction Capital fell into a massive loss of nearly R1.9 billion in the interim period to end March, retreating off a R615 million profit in the prior year’s contrasting period. This meant the company was skipping a dividend payment to shareholders.
Core earnings on a continuing basis for the group amounted to R353m, down 46% on the previous contrasting period. Similarly, per share attributable earnings slithered 48% to 46.5 cents.
In terms of segmental earnings, Nutun raised attributable earnings by 15% to R189m while WeBuyCars’s attributable earnings fell 22% to R234m. The SA Taxi business was worse off, with a 77% retreat in attributable earnings amounting to R63m.
Investors in Transaction Capital responded negatively, with shares in the company touching a 31% low at R7.52 in intra-day trade on the JSE yesterday.
This was after the company indicated that it would bear “the costs of restructuring SA Taxi in the short term, with a view to rebasing the business” for future growth. This decision had “impacted the half-year results”, and is set to weigh on Transaction Capital’s full-year outlook.
“SA Taxi is a mess,” market analyst, Simon Brown, told Business Report. Although he was anticipating the company to be in a negative financial position, Transaction Capital’s plunge on the JSE came as a surprise for Brown as he reckons that the financial performance is “much in line” with the trading update from March.
“I was surprised at the JSE’s response today. Nutun is doing great, WeBuyCars is under pressure but that makes sense as the consumer sector is struggling,” he said.
The SA Taxi division posted a R2.1bn loss for the period under review as it struggles to shake off the effects of Covid-19 lockdowns in prior reporting periods.
There have also been additional knocks from a tough operating environment in South Africa, which has seen interest rates spike, fuel prices and inflation soar at a time that consumer incomes have continued to be depressed.
However, WeBuyCars division has shown trends reflecting potential in the pre-owned vehicle category. Transaction Capital CEO, David Hurwitz, told investors during the company’s results briefing that “more commuters are moving from being passengers to becoming first-time buyers” of used cars.
“Demand for more affordable used-vehicles continues to grow with disposable incomes in distress and new vehicles prices rising, compounded by a depreciating rand. We have experienced a cyclical deterioration in the SA used-vehicle market and WeBuyCars responded to the market by focusing more on lower priced used-cars,” said Hurwitz.
Chief investment officer for Transaction Capital, Mark Herskovits, played down the impact of the poor performance by SA Taxis, saying the business was not expecting “any defaults” in SA Taxis operations or knock-on effects to the rest of the company.
“There is no linkage between SA Taxis and the rest of the business. There is no reason to have any contagion or leakage as a result of the risks from the SA Taxi business. In terms of growing our books, we would require ongoing support of external funders,” Herskovits said.
Additionally, all of Transaction Capital’s “existing funding lines are committed and continue to be available” for drawdown.
The company is operating on a “funding runway that sits at seven months which is reasonable but lower than what we would need, which is about 12 months”, he said.
BUSINESS REPORT