The CEO of Transaction Capital sold 40% of his investment In December

David Hurwitz, CEO of Transaction Capital, sold 42% of his almost four million shares in the company a little more than three months ago. The 1.6 million shares were sold on the open market over three days for a total of R50.99 million.

This was announced in a seemingly benign release on December 19, during the year’s second-quietest trading week.

At the time, the group stated that the Dovie Trust (Hurwitz’s family trust) had pledged these shares as collateral for portfolio loans from an institutional lender.

 “A portion of the debt has fallen due and the Dovie Trust has elected to sell the securities as part of its portfolio rebalancing and debt reduction goals.”

Following the sales, 2.35 million shares remained pledged under this agreement “against less than R10 million of debt outstanding”.

The big blocks of share sales in December, the majority of which were sold at roughly R31 per share, placed some pressure on the group’s share price at the time, and it has been drifting lower for much of the last month.

Bombshell

When the market closed on Monday, a completely unexpected update carrying harsh profit warnings for both SA Taxi and WeBuyCars – as well as an overall loss for the company – shook investors.

Shares finished 37% down at R17.67, after falling as high as 41% throughout the day. There was also an unusual 8% reduction in its share price during the previous week, prior to Tuesday’s catastrophe.

Since the beginning of March, R10.1 billion in value has been lost, with the majority of this attributable to Tuesday’s collapse.

Shares are down 43% from 1 March, and Transaction Capital has lost 66% of its value since the all-time high of R52.50 reached last year.

Throughout the previous year, the average daily trading volume in the group has been 1.6 million shares.

On Tuesday, approximately 24 million shares were exchanged, making the counter the most active on the JSE (dwarfing Sibanye-Stillwater, Old Mutual, FirstRand, Redefine and Growthpoint).

Timing of sales

Market investors have legitimately questioned the timing of the selling of such a significant portion of the primary decision maker’s stake in the business.

Hurwitz must have known by December that trading in both the SA Taxi and WeBuyCars segments was far below expectations.

The entire board would’ve surely known this; conditions did not suddenly deteriorate in the first two months of this calendar year.

The fact that the total business will record a loss due to one-time costs and potential impairments demonstrates how stunning Monday’s statement was.

Yet, the sale of a sizable chunk of Hurwitz’s stake in the business was approved and carried out in December. “All disposals of… securities were executed on market by a broker, with prior clearance, on behalf of the director,” according to the organisation.

Horribly bad

Last year’s top line was R1.588 billion. To warn shareholders of a loss in the first six months of FY2023, these “one-time charges” must be more than R1.6 billion.

Bad debt provisions in the SA Taxi company, now renamed as GoMo, will rise by R1.8 billion. Of this, R700 million will be an increase on its current overdue book (90 days-plus) and R1.15 billion will be a “increase in forward-looking provisions to reflect the recalibrated business model across the entire portfolio”.

Basically, it expects that a lot of taxi loans it has granted to operators will not be paid back.

The value of its repossessed taxi fleet will be cut by R150 million. Oh, and an R2 billion intercompany loan between Transaction Capital and SA Taxi, which is now housed under what the group refers to as the ‘Mobalyz mobility platform’ (cue eyerolls), will be capitalised as equity.

Yep, it’s that horrible.

Sabvest

It is worth noting that Sabvest has been slowly reducing its stake in Transaction Capital.

In 2019, it owned 10 million shares (about 2% of the company). By the end of September 2022, this figure had fallen to five million (from eight million at the start of the financial year).

In August, it emphasised that the “reduction was part of Sabcap’s liquidity and portfolio balancing decisions and not … specific” to Transaction Capital, for which “Prospects for growth are strong”.

The investment holding company will soon release its 2022 results, which will reveal if it has sold off any more of its holdings.

As a side note, Sabvest CEO Christopher Seabrooke stepped down as chair of Transaction Capital on December 31. He continues to serve as a non-executive director.
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