Following the crash in Transaction Capital’s share price last week after a profit warning, the group on Monday noted in a further market update that it won’t be issuing new shares to part-fund a deal to acquire a further 15% stake in used-vehicle retailer WeBuyCars.

Read: Big holders dump Transaction Capital – but who’s been selling?

“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,” the company said in a Sens statement.

In September 2021, Transaction Capital announced its “strategic intent to increase its shareholding in WeBuyCars by a further 15%”. This would take its holding to around 90%.

As part of an “accelerated transaction” proposed in September last year, it said 30% of the purchase consideration would be settled through the issuance of Transaction Capital shares to the vendors.

Read:
Transaction Capital plunges as it forecasts loss
Transaction Capital CEO sold 40% of holding in December

On Monday, the group noted that its decision not to proceed with the share issuance “is in agreement with the vendors”.

It added: “A further consequence of this decision is the company retaining the cash portion of the purchase consideration.”

Transaction Capital explained that the existing put and call arrangements “will be effected” to now conclude the deal.

“This enables the purchase of this 15% stake in two equal tranches, in September 2023 and September 2024 [details are set out in the announcement released on Sens on 22 September 2021],” it said.

Further down in its Sens statement, Transaction Capital reiterated: “The board is currently not contemplating any issue of shares and is comfortable with the group’s liquidity position.”

Read:
Used car sales are flying, and Transaction Capital’s results prove it [Nov 2022]
Transaction Capital increases stake in WeBuyCars to 74.9% [May 2021]
Transaction Capital swoops on WeBuyCars [Sept 2020]

Speaking to Moneyweb, Just One Lap founder and MoneywebNOW host Simon Brown said the share issuance reversal would not compromise the WeBuyCars deal.

“The question is do they desperately need cash … I’m not sure that they do necessarily, but the point is they [Transaction Capital] basically can’t issue shares,” he said.

With the share trading around R10, it has become “far too diluted to issue” said Brown.

“More than anything, that statement is just to say to the market ‘Don’t worry, we’re not going to do a capital raise at these sort of levels’ … ” he added.

Biggest business unit

Transaction Capital’s acquisition of WeBuyCars is part of its long-term strategy to diversify its business beyond taxi financing. Currently making up 43% of its 2022 earnings, WeBuyCars is now Transaction Capital’s largest business.

Last year, the company successfully concluded a R1.28 billion equity raise, with proceeds from the raise intended to pursue different growth opportunities, including increasing its shareholding in WeBuyCars.

Its share price fell by a further 7.39% on Monday (to close at R10.65 apiece), after it warned that its headline earnings per share (Heps) could plunge over 350% for the six months ending March 2023.

Listen: Is Transaction Capital worth a punt below R10?

According to its market update, Heps from continuing operations are expected to decline between 356% and 351% compared to the prior period, to between -186 cents and -182.2 cents per share, from a previous 72.6 cents per share.

However, the group noted: “It is management’s view that the most appropriate metric to measure performance is core EPS [earnings per share] from continuing operations.”

On the core EPS from continuing operations measure, the group expects this to fall by between 46% and 41%, when 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,” it however added.

Shares in the company, which provides financing to South Africa’s taxi industry, had a hellish run last week after the company warned that it expects to report steep earnings losses.

Transaction Capital increased provisions for bad debt in its SA Taxi unit by more than R1.8 billion. It also wrote down the value of repossessed vehicle stock by R150 million.

Read: How do lenders’ provisions work?

Following the release of its profit warning last week Tuesday, the group’s shares initially tanked by a record 40%, which led to the stock ending the week nearly 60% down.