Transaction Capital wins back some lost ground, boosted by broker upgrade
Citi upgrades the share to a buy with a target price of R10
Transactional Capital has rebounded 37% over the past two weeks, suggesting that investors are giving management the benefit of the doubt as they go about fixing the group’s troubled SA taxi business.
The share price was 5% higher at R6.75 at close of trade on the JSE on Friday, still down almost 80% in the year to date, indicating the mammoth task management faces to restore the paper losses suffered by shareholders.
The shareholders include the Public Investment Corporation, which manages R2.6-trillion worth of assets, much of it government employee pensions.
The closing share price took the beleaguered group’s market value to R5bn, compared with R25bn in early March and a peak of R40bn in April last year.
But in a major boost to market confidence, Citi in the past week upgraded the stock to a buy with a target price of R10.
The rally, albeit off a particularly low base, comes four weeks before the release of the group’s full-year results on December 5, when departing CEO David Hurwitz will also update the market on progress in reshaping the debt-laden SA Taxi.
In September, Transactional Capital said management made significant progress in restructuring SA Taxi’s operations and balance sheet, resulting in a more stable business. However, the restructuring process and the related nonrecurring costs will affect the results for the reporting period.
In efforts to restructure the troubled division’s balance sheet and shore up market confidence, the company set up a committee comprising executives, independent nonexecutive directors and external advisers under Chris Seabrooke, a major shareholder and company chair.
The committee had to meet many banks and foreign development finance organisations to persuade them to extend debt terms.
SA Taxi, which was once its mainstay business before second-hand car dealer WeBuyCars and debt collector Nutun took prominence, has been battling to recover since the Covid pandemic, which shook commuter travel patterns while taxi bosses struggled to keep with loan repayments as interest rates rose.
While the taxi industry is still the biggest mode of public transport, its dominance was reduced in recent years after the arrival of convenient e-hailing firms.
Taxi fare increases appear to have been insufficient to compensate for earlier increases in fuel prices and the general increase in the costs of servicing and maintaining the vehicles.
Part of Transaction Capital’s planned restructuring of SA Taxi includes reducing the number of vehicles to be refurbished and refinanced, finding other channels to sell repossessed vehicles, cutting staff and resizing the cost base.
However, the group’s WeBuyCars and Nutun units are holding their own despite the tough economic environment, Transaction Capital said in September when it published a trading update.
The company owns almost 75% of WeBuyCars, though exponential growth there has tapered.
“WeBuyCars has gained market share and improved its stock and trading mix towards cheaper vehicles, aligning with current consumer demand despite the challenging operating landscape and the increased supply of new vehicles,” said Transaction Capital.
Nutun experienced “strong” growth in customer experience services revenue, primarily from UK-based clients but also from SA, Australia, and the US, said the company.
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