Transaction Capital Suspends Share Issuance for WeBuyCars Stake Acquisition

Transaction Capital

After the recent decline in Transaction Capital’s share price following a profit warning, the company announced on Monday that it will no longer be issuing new shares as part of its plan to acquire an additional 15% stake in used-car retailer WeBuyCars. This decision comes as a result of the board’s resolution to avoid issuing shares at the current market price.

  1. Transaction Capital has decided not to issue new shares to part-fund its acquisition of a further 15% stake in used-car retailer WeBuyCars, following a decline in its share price and a profit warning.
  2. The company has agreed with the vendors to retain the cash portion of the purchase consideration and will now purchase the additional stake in WeBuyCars in two equal tranches, scheduled for September 2023 and September 2024.
  3. Transaction Capital’s share price has fallen, and it warned that headline earnings per share (Heps) could drop over 350% for the six months ending March 2023. However, the company emphasized that core earnings per share (EPS) from continuing operations are the most appropriate performance metric.

Accelerated Transaction Cancelled

The company stated in a Sens announcement, “In light of the current share price, the board has resolved not to issue Transaction Capital shares at this time. As such, the accelerated transaction will not be concluded as previously communicated to shareholders.” In September 2021, Transaction Capital revealed its strategic plan to increase its shareholding in WeBuyCars by another 15%, taking its total ownership to approximately 90%.

The “accelerated transaction” initially proposed in September 2021 included settling 30% of the purchase consideration through the issuance of Transaction Capital shares to the vendors. However, the company has now agreed with the vendors not to proceed with the share issuance, retaining the cash portion of the purchase consideration instead.

New Payment Plan for WeBuyCars Stake

Transaction Capital’s updated plan involves purchasing the additional 15% stake in WeBuyCars in two equal tranches, scheduled for September 2023 and September 2024. The company assured investors in its Sens statement that it is not currently considering issuing shares and is content with the group’s liquidity position.

Strategic Acquisition for Business Diversification

Acquiring WeBuyCars is a critical move in Transaction Capital’s long-term strategy to diversify its business beyond taxi financing. WeBuyCars now constitutes 43% of the company’s 2022 earnings, making it Transaction Capital’s largest business. In 2022, the company successfully raised R1.28 billion in equity to pursue various growth opportunities, including increasing its shareholding in WeBuyCars.

Share Price Decline and Earnings Warning

Transaction Capital’s share price fell by another 7.39% on Monday (closing at R10.65 apiece), following its warning that headline earnings per share (Heps) could drop over 350% for the six months ending March 2023. According to its market update, Heps from continuing operations are expected to decline between 356% and 351% compared to the previous period, falling to between -186 cents and -182.2 cents per share from an earlier 72.6 cents per share.

However, the company emphasized that core earnings per share (EPS) from continuing operations are the most appropriate performance metric. On this measure, the group expects a decline of between 46% and 41% compared to the corresponding half-year. “For the 12 months ending 30 September 2023, core EPS from continuing operations are forecast to be between 24% to 19% below the prior corresponding period, based upon an anticipated stronger second half,” the company added.

Steep Earnings Losses Impact Share Performance

Shares in Transaction Capital, which primarily provides financing to South Africa’s taxi industry, suffered last week after the company warned of expected steep earnings losses. The company increased provisions for bad debt in its SA Taxi unit by over R1.8 billion and wrote down the value of repossessed vehicle stock by R150 million.

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