In April 2022, shares in Transaction Capital (JSE: TCP) hit over R18.30. Fast-forward to today, and you can invest in TCP at around R2.70 a share. That’s a whopping 85% drop in its share price in just over two years! So, what happened?

And does this major drop signal an “incredible buying opportunity”?  Let’s look…

Crisis after crisis hit Transaction Capital taxi business…

A large part of TCP’s business is SA Taxi, who provides finance, insurance, and other services to SA’s taxi industry. Typically, SA Taxi operates at the higher end of the taxi market, where operators run profitable routes and can afford to buy and finance new Toyotas.

However, over the past few years, SA Taxi has been battered by wave after wave of crises.

For example, Covid and lockdowns almost completely wiped out the business. After all, millions of South Africans couldn’t commute as businesses, shopping centres and restaurants were closed.

TCP did expect a quick recovery once Covid and lockdowns subsided, however this has yet to materialise.

It also didn’t help that higher fuel prices and interest rates have reduced affordability for taxi operators. As a result, this led to lower commuter movement.

The problem is taxi operators can’t pass on the costs to commuters as they simply can’t afford it. So, the taxi industry has had to absorb the increasing costs which has affected profitability.

Because of these issues, TCP implemented an aggressive restructuring strategy of its taxi division in 2023.

And no surprise, shareholders didn’t take kindly to this news sending its shares cratering.

The company also announced that SA Taxi and Gomo (its mobility platform aimed at the under-penetrated used vehicle finance and insurance sector), will be restructured into a new mobility platform, Mobalyz.

Looking at TCP’s recent results announcement, this restructuring is now done and dusted. But it doesn’t look promising at all.

In the first half of 2024, Mobalyz made a core loss from continuing operations of R1.8 billion.

TCP’s other business, Nutun, which consists of a business process outsourcing (BPO) business and a debt collecting segment, experienced significant cost increases, which hurt profitability in the first half of 2024.

Core earnings from continuing operations attributable to the group decreased by 14% to R151 million.

Despite the drop in earnings, headline loss per share improved from 226.4c to 164c.

Is now a good time to buy?

The short answer is no!

SA Taxi still faces difficulties around restructuring loans. SA Taxi is owed more than R17 billion by taxi owners and has R5.3 billion in debt that it is unable to service.

This holds a reputational risk for Nutun’s financing strategy.

In addition, petrol prices and interest rates remain high and will continue to do so this year. This will continue to impact commuter’s pockets as well as taxi operators – who are already struggling with financing payments.

Despite an improved earnings result, TCP still has a very long road to recovery ahead of them. And it would be wise for investors to sit this one out and watch from the sidelines.

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