Our opinion on the current state of TRANSCAP(TCP)Transaction Capital (TCP) is a South African company with two primary divisions: minibus taxis and risk services, following the unbundling and separate listing of WeBuyCars (WBC).
Its subsidiary, SA Taxi, is deeply integrated into the minibus taxi industry, offering financing, repairs, insurance, and vehicle sales. This vertical integration enables SA Taxi to dominate the value chain associated with minibus taxis, a vital mode of transport for over 69% of South African households, facilitating more than 15 million trips daily. The industry, being non-discretionary, is traditionally defensive and less susceptible to broader economic downturns. However, in recent years, SA Taxi faced severe challenges due to rising interest rates, elevated fuel prices, increased costs of maintenance, and declining commuter volumes amid economic pressures.
To mitigate losses, SA Taxi halted the financing of new Toyota minibus taxis, focusing instead on refurbished second-hand vehicles. This shift in strategy follows a R1.8bn bad debt provision and the decision to scale back from financing 600 new vehicles per month to selling around 200 refurbished taxis monthly. As of 2023, SA Taxi was owed R17bn by taxi owners, many of whom were struggling to meet repayments due to increased operating costs and reduced passenger numbers.
The Transaction Capital Risk Services (TCRS) division operates in South Africa and Australia, specializing in debt collection. The company sold its Australian holdings in Nutun for A$58.3m to strengthen its balance sheet.
The company has undergone significant leadership and structural changes. CEO David Hurwitz resigned effective 31st December 2023, and the successful listing of WeBuyCars allowed TCP to return R5.2bn to shareholders and raise an additional R1bn. Despite these moves, the company remains under significant pressure.
In its results for the six months ending 31st March 2024, TCP reported revenue of R981m, down from R1.295bn, and a headline loss of 164.9c per share, improving slightly from the 224.6c loss in the previous period. The full-year trading statement for 30th September 2024 estimates a headline loss of 279.6c to 302.2c per share, compared to a restated loss of 231.9c in 2023. On a positive note, the balance sheet reflects minimal debt and a R100m net cash position at year-end.
Outlook
Much of TCP’s future depends on the recovery of the South African economy following the 2024 elections and the anticipated growth from the Government of National Unity (GNU). While the company is working to stabilize its operations, particularly in SA Taxi, and strengthen its balance sheet, the share remains highly risky and challenging to evaluate, given the uncertain economic landscape and the evolving challenges within its core markets.
