Stalled SA Taxi business still a headache for TCP

The restructured Transaction Capital (TCP) is hardly a left-fordead listing. There remains a fairly compelling financial services rump — which was the reason investors initially took a liking to TCP.

However, there has been far more investor interest in the separate listing of online vehicle retailer WeBuyCars (WBC) than the remnants of TCP. That’s understandable.

WBC presents an intriguing growth story, and the initial trading in the newly listed share confirms considerable market interest and widespread coverage by the media. On the other hand,

TCP — despite being flush with new capital after the WBC split-off — still faces stiff challenges. In particular, the market will be morbidly fascinated to watch how TCP restarts or extricates its investment in the dangerously stalled SA Taxi business.

In short, punters who liked the WBC model (IM still prefers the old-school offering of Combined Motor Holdings) but did not want to touch the legacy problems at TCP are now free to buy shares in WBC sans risky encumbrances.

Naturally, after the separate listing of WBC, the TCP share price fell away to reflect the new operating structure — which is made up of financial services business Nutun and SA Taxi. There’s also the startup Gomo business, which focuses on vehicle financing.

To be frank, investors won’t view anything that remains in TCP as exciting, or as easy to gauge, as WBC. IM can’t see the share price rallying with any conviction in the short term — though we’d be delighted to be proved wrong.

Initially, predictions were for TCP to settle around 400c, but at the time of writing the share was lolling around 250c.

Is there value at these levels? Probably. But patience will be needed. IM reckons a sceptical market will wait to see if the new-look TCP can gain traction through the performance of main asset Nutun, which is still a halfdecent fintech-type business operating in a few viable niches.

Nutun’s operations extend mainly to credit management and debt collection — but also include transactional services, payroll and human resources management systems and credit reports.

The important thing at this delicate juncture is that TCP can at least ponder Nutun’s growth ambitions and explore solutions for SA Taxi from a position of relative strength. After the sale of shares in WBC, TCP is debt-free at holding company level.

TCP’s interim results are expected around mid-May. The market will be hoping for more clarity on the SA Taxi position — but more importantly, for comprehensive detail on Nutun’s performance.

In the last financial year, Nutun managed R436m in core earnings — though TCP reported a crimp across gross profit, operating and profit before tax margins. That said, margins might still be considered fat, relatively speaking, at 57%, 37% and 13% respectively.

IM still reckons Nutun is capable of generating core earnings of about R525m in financial 2024 and possibly more than R560m in 2025. But this performance will be checked with ongoing losses from SA Taxi, probably for the medium term.

The SA Taxi predicament is not something that will be quickly resolved. A restructuring is close to completion, with a view to ensuring the SA Taxi business is self-funding and not a costly drain on TCP.

But SA Taxi will never be viewed with the same enthusiasm as it initially was, when TCP presented a rapid growth story several years ago. If TCP can pull this off, meaningful profits may materialise only after the

2028 financial year.

While the minibus taxi industry is arguably the most important mobility hub in South Africa, the sector has its challenges. Tough economic conditions mean commuter numbers have been stifled at a time when the passing on of fare increases has been difficult. Running costs are up on the back of a higher fuel price and elevated interest rates, while the weaker rand has often meant spare parts have increased in price.

Fleet affordability is now critical to taxi owners. So SA Taxi has recognised the need to shift away from financing new minibus taxis to financing only pre-owned vehicles.

How this pans out remains to be seen, but at least the focus on pre-owned vehicle financing means SA Taxi can slash its stock of repossessed vehicles and perhaps improve its liquidity.

But there are serious structural impediments. TCP admitted in its most recent financial statements that the minibus taxi industry was also “experiencing significant delays and inefficiencies in the legal system relating to the repossession of vehicles from defaulting clients”. This has increased fraud and elevated losses across the industry, and is worrying.

For the short term, investors considering TCP might want to gauge the progress in restructuring industry body Santaco’s 25% stake in SA Taxi. Santaco’s continued participation is the key to steering SA Taxi back onto a profitable path.

The bottom line is that it might be early to hitch a ride on the new TCP though it is a turnaround situation well worth monitoring.