Transaction Capital’s plan to save SA Taxi

Transaction Capital has explained its strategy for turning around its ailing subsidiary, SA Taxi, and making the business more efficient and flexible following its restructuring. 

Transaction Capital’s share price has declined by over 80% in 2023, with the company reporting a loss of R1.9 billion for the first six months of its 2023 financial year. This was 390% worse than the corresponding period in 2022.

The largest contributor was a significant impairment loss of R2.4 billion on loans and advances that the company realised during the half-year period.

These impairment losses relate to SA Taxi. Since the Covid-19 outbreak in South Africa, the taxi industry has experienced significant headwinds.

As economic activity slowed and interest rates increased, SA Taxi experienced a large number of defaults on taxi loan accounts.

On the back of these headwinds, SA Taxi implemented a debt rehabilitation program in 2022 to increase its efforts in taxi loan collections.

7,922 loan accounts were restructured by applying relief measures such as extending the term of the contracts.

However, the debt rehabilitation was unsuccessful and had no material impact on the company’s financial performance.

Thus, Daily Investor asked Transaction Capital what plans it has for SA Taxi in the coming years with a view on how it planned to improve its performance. 

SA Taxi said it remains committed to the minibus taxi sector but will reduce the capital it deploys into the sector as the industry faces significant challenges. 

The strategic focus in the current year is to make the business smaller and healthier, with the operational and financial flexibility to recover and grow. 

Transaction Capital has restructured the business and taken all the required restructuring provisions for the 2023 financial year.

There have also been changes to the management team to support this strategy, and the volume of repossessed vehicles to be refurbished and refinanced has been sharply reduced.

The company is actively looking for alternative ways of disposing of the vehicles it repossesses as it cannot sell them through its normal channels. 

However, SA Taxi will not be downscaling its refurbishment and repair facilities as it aims to sell these off to a strategic partner. 

The business still relies on support from debt funders to sustain SA Taxi’s lending operations. 

The immediate priorities are to negotiate with lenders to:

1. Push out bullet payments on debt that is due in the short term
2. Obtain new debt facilities to extend its funding runway to at least 12 months. SA Taxi currently has approximately 6 months of funding runway.
3. Extend repayment profiles of their funding beyond five years to match the assets on book, which are running for longer as many of its clients have needed to extend their loan terms. 
4. Assess if more equity is required in the business.

The minibus taxi industry continues to be the largest service in the country’s integrated public transport network, of which SA Taxi has the largest share of any company, presenting a significant opportunity for the company to drive revenue growth.

Analyst opinion

Wayne McCurrie and David Shapiro spoke to BusinessDayTV about Transaction Capital’s prospects in the near future, with both saying there is plenty of upside. However, they disagreed about when the right time is to invest in the company.

McCurrie said he is willing to jump in and buy up shares at Transaction Capital’s current price as there is tremendous upside at its current valuation.

“I still think their non-SA Taxi businesses are very good businesses,” McCurrie said in reference to Nutun and WeBuyCars.

Transaction Capital will either turn SA Taxi around or close it – either way, McCurrie sees good value in the company.

Chief Investment Officer at Integral Asset Management Keith McLachlan echoed McCurrie during a JSE Stock Picks event.

It is “offering significant value at its current price”, with McLachlan estimating that it trades at a 50% discount even if one were to write off SA Taxi.

McLachlan values Nutun alone at R8 a share, which is worth more than what Transaction Capital is currently trading at.

WeBuyCars is worth R8 to R10 a share, making these two businesses worth over double what the entire company is worth at its current share price.

When market darlings such as Transaction Capital fall, the market often overreacts, which presents an opportunity, said McLachlan.

However, he did warn that the company would take three to four sets of results to return to its fair value.

Shapiro also cautioned that it would take some time before Transaction Capital realises its true value, with it “still looking like a falling knife”.

“Value will emerge, but just give a few more half-year results to see whether they are turning the company around,” he said.