TransCap share price hits a decade low

• Negative sentiment haunts the struggling taxi-lending business

The Transaction Capital (TransCap) share price plunged to its lowest level in almost a decade on Thursday, piling more pressure on CEO David Hurwitz and his management team as they go about fixing their ailing taxi-lending business, the crown jewel in the group’s portfolio before Covid-19 changed the dynamics of the business.

Transaction Capital’s shares plunged to the lowest in almost a decade on Thursday, piling more pressure on CEO David Hurwitz and his management team as they go about fixing their ailing taxi-lending business, which was once the crown jewel in the group’s portfolio before Covid19 changed the dynamics of the business.

Its share price has been under unrelenting pressure since March when Transaction Capital first laid bare structural deficiencies plaguing the taxi business, which resulted in its overhaul.

Part of its planned restructuring of SA Taxi comprises reducing the number of vehicles to be refurbished and refinanced, finding other channels to sell repossessed vehicles, cutting staff and resizing the cost base.

SA Taxi has since rebranded to Mobalyz to reflect the sweeping changes.

But investors appear to be taking a “seeing is believing” approach, as reflected by the stock price that is down almost 20% so far this month.

While it hits its worst level since 2014 in intraday trade, the share price recovered to close the day 2% higher at R5.70, giving the company a market valuation of just R4.35bn compared with R25bn in early March and its peak of about R40bn in April last year.

Transaction Capital was “effectively a niche bank in a growth sector, with a competitive advantage and valued as such”, said Alec Abraham, equity analyst at Sasfin Securities.

“Now, however, with the decline of SA Taxi and the acquisition of WeBuyCars, it has essentially transformed into a motor vehicle retailer with a largely untested budding business support service [Nutun]. Consequently, the valuation has changed to reflect this change in the nature of the business.”

Transaction Capital owns an almost 75% stake in used-car dealer WeBuyCars, whose exponential growth has tapered off, as well as debt collector Nutun, which has a presence in Australia.

The pandemic has shaken the dynamics of the taxi industry through several hardships that included jobs losses and a hybrid work model that seems to be a permanent feature in some sectors. Dwindling passenger volumes have limited taxi owners’ ability to meet their obligations, leading to repossessions.

The rising interest rates cycle and increasing competition from e-hailing services have also battered the taxi industry, which still accounts for the lion’s share of the commuters relative to other modes of transport.

“The market is anxious the company might need to raise capital through a rights offer. While the business model for SA Taxi was robust over the past five to 10 years, the conditions have changed,” said Petri Redelinghuys, a trader at and founder of Herenya Capital Advisors.

A week ago, Transaction Capital signed a deal with an unnamed bank to provide funding for its vehicle-financing business, Gomo, to allow it to originate more loans for older cars in the hope of driving sales where the bulk of the population cannot afford to buy new vehicles.

As the future of SA Taxi hangs in the balance, with only a few more months of funding left and rising bad debts, Transaction Capital needs to increase income in its remaining businesses.