Transaction Capital CEO comments on share price disaster – and R51 million share sale

Transaction Capital CEO David Hurwitz

Transaction Capital CEO David Hurwitz said the market’s reaction to the company’s recent trading statement is not aligned with the content of the statement.

On 13 March, Transaction Capital released a trading statement warning that core earnings per share from continuing operations were expected to decrease between 20% and 50%.

WeBuyCars, its largest business, experienced margin pressure in the first quarter resulting in a big earnings decline. The company said this should be considered against an extremely high comparator base.

Transaction Capital also revealed that the cyclical headwinds facing SA Taxi’s business model have become structural.

“The business is unlikely to recover to pre-Covid levels in the short to medium term. Management is proactively addressing this through an aggressive restructuring,” it said.

The news sent the share price plummeting 40% on Tuesday, followed by a 20% decline on Wednesday and another 40% on Thursday.

Speaking to The Money Show’s Bruce Whitfield, Hurwitz said the market reaction is “not at all aligned with our statement”.

He said the statement merely pointed out that some of the headwinds faced by the taxi industry following the Covid pandemic have become long-term.

In response, Transaction Capital changed how it views its potential losses going forward and accordingly changed its provisioning model.

“There is no historical hold in the book, poor management, or mismanagement,” Hurwitz said.

“We are really saying that this industry cannot be as profitable as before, and you need to have a once-off adjustment to the business model,” he said.

“This adjustment would work its way out of the system and allow SA Taxi to go back to the races and start going again.”

Hurwitz said he does not understand the rapid share price decline this week and speculated that it might be related to the jittery market conditions.

R51 million share sale

Hurwitz sold a large chunk of his stake in the company less than three months before it released poor results. The share price has plummeted by 70% since his sale.

On 19 December 2022, Transaction Capital announced that the Dovie Trust had disposed of securities held in the company.

Dovie Trust is the family trust of David Hurwitz, of which he is a discretionary beneficiary.

“These securities were pledged as security for portfolio debt from an institutional lender,” Transaction Capital said.

“A portion of the debt has fallen due, and the Dovie Trust has elected to sell the securities as part of its portfolio rebalancing and debt reduction goals.”

It raised eyebrows among investors who questioned the large share disposal shortly before the bad news hit the market.

Hurwitz explained that the on-market share sale was driven by a funding structure that required him to settle his debt.

“I put my shares up as collateral. The share price went down by 10% – from R42 to R33 – and the guys called me and said you need to settle some of the debt,” he explained.

“I engaged with our chairman, directors, and executives and took the decision to settle all the debt. I sold shares and used all the proceeds to settle the debt and pay capital gains tax.”

Hurwitz’s share options also vested in November, which gave him three options:

  • Sell all the shares.
  • Sell enough shares to pay your tax.
  • Take money out of your pocket to pay the tax and keep all the shares.

“I wasn’t taking money off the table or anything like that. It took my own money to pay tax and keep the shares,” he said.

“In November, my mindset was buying shares. In December, because of the market conditions, it caused me to sell.”

He added that he only sold 30% of his stake in the company and not 40%, as reported in some articles.