Transaction Capital’s WeBuyCars Deal Faces Delay Due to Sharp Decline in Share Price

Transaction Capital

South Africa’s leading taxi financier, Transaction Capital, has reported an anticipated decline of up to 46% in its core profit measure for the half-year ending in March. This significant decrease has been attributed to the recent plummet in the company’s share price, which has also forced Transaction Capital to postpone its plans to increase its stake in vehicle dealer WeBuyCars.

  1. Transaction Capital, South Africa’s largest taxi financier, anticipates a 41-46% decline in its core profit measure for the half-year ending in March, due to the recent crash in its share price.
  2. The share price slump has forced the company to postpone its plans to increase its stake in vehicle dealer WeBuyCars, though the acquisition process will continue with a revised schedule.
  3. WeBuyCars has grown to become Transaction Capital’s largest business, contributing 43% of core earnings attributable to the group in its 2022 fiscal year, compared to SA Taxi’s 70% share three years earlier.

The group’s core earnings per share, which is its preferred profit measure and excludes certain non-operational items, is predicted to drop by 41% to 46% for ongoing operations. Furthermore, total headline earnings per share could potentially fall by an astounding 375%, according to the company’s update. Transaction Capital has also announced its intention to divest from its refurbishment and repairs business, leading to accounting adjustments for discontinued operations and changes in vehicle levels at WeBuyCars.

Last week’s update pushed Transaction Capital into the limelight, causing a drastic drop in its shares down to levels not seen since 2015. The company has forewarned of a profit decrease of at least a fifth for its preferred measure, with WeBuyCars facing pressure on its margins and financier SA Taxi struggling due to a weakened economy, among other factors.

The plummet in profits has also drawn attention to the company’s management deal, as a trust linked to CEO David Hurwitz had sold a large portion of its shares in December. Since the last update on March 13, Transaction Capital’s shares have lost over 60% of their value, with shares trading down by 6 .09% to R10.81 in late morning trade on Monday.

Despite these setbacks, Transaction Capital confirmed on Monday that it is moving forward with plans to acquire an additional 15% stake in WeBuyCars. However, due to the dramatic crash in its share price, the company has decided not to issue shares at this time.

The acquisition of the extra 15% stake in WeBuyCars will proceed in accordance with the existing put and call arrangements. This will enable the purchase of the 15% stake in two equal tranches, scheduled for September 2023 and September 2024. As part of the deal, 30% of the purchase consideration is set to be settled in shares.

Transaction Capital initially acquired a 49.9% stake in WeBuyCars in 2020, which it later increased to 74.9% in 2021. The company had previously expressed its hope to complete the acquisition of the additional stake by April 2023. WeBuyCars now constitutes Transaction’s largest business, contributing approximately 43% of core earnings attributable to the group in its 2022 fiscal year. This is a significant shift from just three years prior when SA Taxi made up 70% of the group’s core earnings.

On Monday, Transaction Capital also disclosed that the company’s founders, Jonathan Jawno, Michael Mendelowitz, and Roberto Rossi, are indirect beneficial holders of 109 million shares (about 14%) through Pilatucom Holdings.

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