Shares in Transaction Capital which finances taxis, plunged a whopping 40.8% on Tuesday, wiping billions of rands off its value after it forecast losses ahead, and announced an aggressive restructuring of SA Taxi amid macroeconomic headwinds.
The share fell to an intraday low of R16.64 on Tuesday with a market cap of R21.4 billion.
Global financial stocks, including those trading on the all share index, have been hit by extreme volatility after the collapse of Silicon Valley Bank, with billions wiped off the market as investors take a risk off approach.
Transaction Capital issued a statement late on Monday, forecasting that it expected its core earnings per share (Eps) from continuing operations for half year 2023 to decrease by greater than 20%, but no more than 50%, when compared to the corresponding period a year ago.
However, it expected core Eps from continuing operations in the second half of full year 2023 to be higher than the first half, and as such it expected core Eps from continuing operations for the full year to be down to a lesser extent (in percentage terms).
Transaction Capital said its balance sheet remained in a healthy position. Its divisions were well positioned to benefit from structural opportunities in the local and global environment and were advantageously placed to benefit from accelerated digital adoption.
"After accounting for restructuring costs and increased provisions related to SA Taxi, Transaction Capital is comfortable that the balance sheet remains strong and covenant levels have not been breached,“ it said.
“Transaction Capital believes that the cyclical headwinds facing SA Taxi’s business model have now become more structural in nature, and the business is unlikely to recover to pre-Covid levels in the short to medium-term. Management is proactively addressing this through an aggressive restructuring to right size this business and position it for future growth,” it said.
David Hurwitz, the CEO of Transaction Capital said, “We are proud of our track record of delivering consistently high growth for stakeholders and believe that Transaction Capital will continue to deliver this into the medium term.
“In the short term, we believe it is prudent to acknowledge and decisively tackle the issues facing SA Taxi, and to reset this business for future 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.“
SA Taxi and Gomo are to be restructured to a new mobility platform, to be branded Mobalyz.
“Mobalyz houses our credit, insurance and funding intellectual property, datasets and technologies, making it the operating engine powering SA Taxi (its proprietary minibus taxi division) and Gomo (its used vehicle finance and insuranceplatform),” Transaction Capital said.
Mobalyz was expected to report significantly lower core earnings from continuing operations than half year 2022, primarily as a result of the structural shifts in the minibus taxi operating environment.
“The market response to the Gomo offering has exceeded expectations, and to capture and maximise this growth opportunity, significant progress has been made in securing a symbiotic arrangement with a substantial funding partner that will allow Gomo to write loans directly on the funder’s balance sheet.
“This positions Gomo as a manager of F&I products, earning fee income and participating in a portion of credit and insurance underwriting profits, but without funding or assuming credit underwriting risk as a principal lender,” Transaction Capital said.
“Our business models remain highly relevant and resilient, however, some parts of the group are being significantly impacted by the prevailing macroeconomic headwinds," it said.
Transaction Capital has three divisions: SA Taxi, WeBuyCars and Nutun.
It said car firm WeBuyCars experienced some margin pressure in the first quarter of financial year 2023, which would be reflected in expected earnings decreasing by not more than 20% for the half year ended March 31, 2023
"This should be considered against an extremely high comparator base in the first half of the 2022 financial year. Despite this, we are confident that the business will grow earnings for the full FY2023,“ it said, adding that the long-term structural elements supporting the business model remained robust.
WeBuyCars’ market position was unassailable and the business continues to increase market share, it said.
Meanwhile, Nutun, a business to business service, remained on track to grow earnings in the 2023 financial year at a rate exceeding Transaction Capital’s historical levels driven by increased acquisition and collection of non- performing loan portfolios, and the delivery of a new broader range of digitally driven customer experience management services to a global client base.
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