Counterpoint Asset Management executive director Piet Viljoen said there were clear signs that bad news was coming for Transaction Capital before its share price plummeted.
Last week, 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, and it warned that cyclical headwinds facing SA Taxi’s business model have become structural.
The news sent the share price plummeting by 70% in the days following the announcement, destroying tremendous shareholder value.
Viljoen said management told shareholders bad news was coming and gave them fair warning to adjust their exposure appropriately.
However, it was not done through a trading update or comments in the company’s financial statements.
“If you study Transaction Capital’s financials that were available before the share price meltdown, you will find no sign of trouble,” Viljoen said.
Rather, the signs were contained in announcements related to significant sales of shares by management.
He referred to Transaction Capital CEO David Hurwitz’s R51 million share sale in December 2022 – less than three months before it released poor results.
This was officially announced on 19 December, when most investors were slapping on the suntan lotion at their favourite beach, not watching stock market announcements.
Some investors seem to be upset that management got away with selling such big chunks of shares. They seem to believe that the executives should go down with the ship.
Viljoen has a different view.
He highlighted that, despite the rosy outlook executives always portray, business is messy and is always subject to the vicissitudes of the marketplace.
The bad news is that analysing financial reports for signs of future distress are a waste of time. The reported financial accounts pertain to that which has already happened.
Understanding the accounts can lead to a good understanding of the business and helps with understanding the economics driving the value creation – or lack thereof.
However, they are useless when it comes to the here and now, the immediate competitive dynamics that the business is experiencing.
Viljoen said the information conveyed through the buying and selling of shares by management is more useful. “To alert investors, this can serve as actionable information,” he said.
He is strongly in favour of allowing executives to transact. “As long as the trades are disclosed properly and timeously, I say it’s all good.”
“If you were left holding the bag in Transaction Capital, you simply weren’t listening to management.”
As they say in the classics: “Don’t do what I say, do what I do”.