THE FINANCE GHOST
Transaction Capital slams on the brakes
Like a taxi dropping off commuters in the middle of the highway, Transaction Capital’s latest update has presented shareholders with a nasty surprise. Those brake lights (in the form of major recent director dealings) came on just too late for anyone to swerve, meaning most took a direct hit and are feeling the hurt.
At the time of writing, the share price had lost an incredible 70% in just a few days.
The only highlight to be found is the Nutun division, thanks to high levels of consumer debt and a business model that has proven to be reliable.
WeBuyCars has said that its earnings are likely to be down by up to 20% in the six months to March. The company has blamed this on margin pressure, as the mix of vehicles it is selling has shifted towards lower-priced cars.
Given the strength of the base period, the WeBuyCars result wasn’t as bad as many had feared. This is a maturing business that was never going to continue to grow at the same rate as it did in its early days, especially in a period of rising interest rates and pressure on consumer spending. However, the company is still doing well in other areas, such as increasing the penetration of finance and insurance products.
On to the real gemors: SA Taxi. The headwinds in this business are now “structural” rather than “cyclical” – precisely what shareholders don’t want to see in the context of headwinds.
As part of trying to reposition SA Taxi as more of an asset-based finance business, Gomo (the finance and insurance platform servicing WeBuyCars) has been structured inside a division that will now be called Mobalyz. Sadly, tech-style usage of pseudo vowels can’t save this one in the short term. Despite South Africa’s absolute reliance on the taxi industry, it is far from a sure investment in this economic climate.
A perfect storm of challenges – including hikes in the fuel price, increases in vehicle prices, more expensive debt and lower commuter volumes – has caused severe headaches for taxi operators and thus for SA Taxi as a lender to the industry. Taxi operators have been unable to push price increases on to cash-strapped commuters, which means they are absorbing costs themselves.
MultiChoice: powerless without TV
Inflation is high. Interest rates are up. The cost of living is rising. So why would consumers continue to pay for a service that they can’t access while their TVs have been comprehensively censored by Eskom for two hours at a time (or more)?
MultiChoice shareholders might hate the logic in that argument, but there’s just about nothing they can do about it. Consumer spending pressures are coming through, and the latest update is a clear reflection of that.
MultiChoice’s FY23 trading margin in SA is expected to be 23% to 28%, which is well below previous market guidance of 28% to 30%. In Rest of Africa, solid subscriber growth (especially in Nigeria) means that the business is due to return to trading profitability this year. That’s nice, but it doesn’t really help if you make money that you can’t get out of the country. Just ask MTN.
And in case you’re wondering, the streaming deal with Comcast in Africa isn’t going to solve the profitability pressure anytime soon.
If anything, streaming is notorious for being loss-making in the early years.
Fun in the Sun International
It’s been quite a time for investors in Sun International, with the stock price up a whopping 40% over 12 months, a performance backed up by some impressive numbers. Headline earnings increased tenfold, and the urban casinos segment has seen a 71% increase in earnings before interest, taxes, depreciation and amortisation (Ebitda).
Sun Slots, though facing some margin pressure owing to load shedding, has still performed well, with income up 20% and Ebitda up 17%. Newcomer SunBet, though still early in its development, is growing strongly across key metrics.
The resorts and hotels business posted Ebitda of R450-million for the 2020 financial year, significantly higher than the R300-million posted in the 2019 financial year. The adjusted Ebitda margin of 17.5% is also a material jump from the pre-pandemic level of 11.7% in 2019.
Not all gambles in the market work out, but this one has been a winner as of late.