Coronation ups stake in Transaction Capital
• Shareholder says WeBuyCars, Nutun have excellent long-term prospects
Cape Town fund manager Coronation, which upped its stake in taxi financier Transaction Capital from 14.4% to just more than 16.57% earlier this week, thinks the share price of the latter could recover as at least two of its businesses have excellent longterm prospects.
The asset manager is the second-largest Transaction shareholder after the Public Investment Corporation (PIC).
Transaction Capital’s share lost almost 70% of its value last week after it released an update saying its taxi finance division, SA Taxi, had problems of a “structural” nature, meaning they could be with the company for some time to come. It also warned of an up to 50% drop in what it calls its core earnings.
The share has recovered slightly this week.
Taxi owners have been struggling to repay their vehicle finance loans as they face higher traffic density and longer trips in load-shedding, a higher fuel price, rising vehicle and spare part prices and fewer commuters and trips in a weak economy.
About 75% of SA Taxi clients are high risk and not able to get loans from ordinary banks, while others are considered underbanked.
Transaction Capital also owns an almost 75% stake in used car dealer WeBuyCars, whose exponential growth has slowed of late, as well as debt collector Nutun, which has a presence in Australia.
Coronation chief investment officer Karl Leinberger said the fund manager thinks “WeBuyCars and Nutun are worth more than twice the current share price” and both have “excellent long-term prospects”.
While Transaction Capital’s share price gained nearly 15% on Thursday to R13.44, it is still down nearly 60% since March 13, with questions remaining about the taxi business.
SA Taxi, which had lent out R15.4bn by September 2022 is seeing growth in its bad debt, with R5.8bn overdue and R3.1bn unlikely to be repaid.
It said it would have to increase provisions for bad debt by R2bn, with the subsidiary undergoing a restructuring.
“We should not lose sight of the fact that the taxi business has been run by a very smart and experienced management team for more than two decades,” Leinberger said.
“We think that the market is assuming a very negative outcome for the taxi business. If that proves, in time, to have been too pessimistic, then the share should recover strongly”.
Under the restructuring process SA Taxi is reducing how many taxis it will finance to about 220 a month, down from a high of more than 800 and about 400 a month last year. This will reduce the income it earns, but also reduce its bad debt as it tightens its lending criteria.
“We agree that they have no choice but to shrink the business in response to the weaker economy. The challenge will be to execute on this operationally and to do so with the support of their funders,” Leinberger said.
Transaction Capital director Chris Seabrooke bought almost R5.4m in shares this week.
Leinberger said there was nothing untoward in Transaction Capital CEO David Hurwitz selling 30% of his shares in December ahead of the poor results.
Hurwitz’s sale spooked the market which thought he might have sold because he saw bad news coming. This led to the company putting out a statement defending him, saying he was forced to sell shares by a lender.
Some investors are, however, sceptical.
“The timing is certainly unfortunate, and it doesn’t look good. But we have done a full due diligence on this and are satisfied that appropriate governance was followed,” Leinberger said.
“We have corroborated the timelines given by the company with several people in the business. Our conclusion is that the CEO did not want to sell his shares, that a margin call forced the sale, and that this happened before the marked deterioration that the taxi business experienced from January onwards.”
Transaction Capital has had to do a lot of damage control over the past two weeks, culminating in a briefing on Thursday night to answer more questions.
Analyst Chris Reddy from All Weather Capital praised the company’s openness.
“You can say what you want about the business, but we have to commend the team on the proactive nature and manner in which they have engaged the investment community in the past two weeks. They didn’t hide away like so many other corporates,” Reddy said.
THE TAXI BUSINESS HAS BEEN RUN BY A VERY SMART AND EXPERIENCED MANAGEMENT TEAM FOR MORE THAN TWO DECADES