Our opinion on the current state of TCP

Transaction Capital (TCP) is a company which has three divisions - minibus taxis, risk services, and WeBuyCars. It specialises in financing, repairing, insuring and selling minibus taxis in South Africa. It completely dominates the entire value chain associated with the minibus taxi industry. The company listed in June 2012 and since then and until 2023, the company generated an annual compound growth in earnings per share of 21% since 2014. That ended abruptly in 2023 when the company revealed that it had to make a R1,8bn provision for bad debts in its minibus taxi division. About 69% of South African households use taxis with more than 15m trips per day. Most of this is non-discretionary - which means that this industry tends to be defensive and not generally impacted by the state of the economy at large. The South African Taxi Council (Santaco) acquired a 25% stake in SA Taxi for R1,7bn in 2018 which is benefiting both parties. The directors of TCP own 32% of the company. The company has had a compound growth in earnings of 20% per annum for the past five years and was partially derailed by COVID-19. The company has excess capital of R1bn. The company is also involved in debt-collection in South Africa and Australia through Transaction Capital Risk Services (TCRS). It is apparent that the taxi industry has suffered from a perfect storm of rising interest rates, rising fuel costs and lower consumer spending resulting in a massive increase in TCP's bad debt provision. On 15th March 2023 the company reported that the controlling Hurwitz family trust had sold 1,6m shares in December 2022 - since then the share has halved in price. To us, the sell-off in TCP shares since the beginning of May 2022 and the sharp 40% drop following its results may present a buying opportunity. Notably, the company announced on 23rd March 2023 that Coronation had increased its holding in TCP to 16,57% of the issued shares. In its results for the six months to 31st March 2023 the company reported a headline loss of 183,3c per share compared with a profit of 71,9c per share (restated) in the previous period. The company said, "After accounting for the restructure of SA Taxi, Transaction Capital is comfortable that its balance sheet remains sufficiently capitalised and debt covenant levels remain intact. WeBuyCars and Nutun have robust balance sheets, supported further by high cash conversion rates. Their capital and funding structures are isolated from the effects of SA Taxi's restructuring, as there are no cross-default clauses between Nutun, WeBuyCars and SA Taxi ("the subsidiaries")". In a trading statement for the year to 30th September 2023 the company said, "core EPS, HEPS and basic EPS are expected to be lower than the ranges reported in the trading statement released on SENS on 20 March 20". Hopefully if you were holding the shares, you sold out on your stop back in May 2022 at prices above R40 per share. More recently, we recommended that you apply a 65-day exponentially smoothed moving average to the Transcap share price and at least wait for a break above that. That has not happened yet although it looks close. If you did sell out on stop-loss, then you have cash to buy back in at these much lower levels when the share shows signs of bottoming. If not, then you have paid some very expensive school fees to learn a basic lesson about stop-loss in the share market.