Woes for Transaction Capital as Bad Debt Provisions Surge

“In the wrong place at the wrong time” is the trending theme for Transaction Capital (JSE: TCP) as shares in the financial services company plummeted nearly 40% on Tuesday, the 14th of March, after the South African lender announced that it forecasts bad debt provisions for SA Taxi to increase by more than R1.8 billion. 

In a post-market trading statement on Monday, the 13th of March, Transaction Capital announced plans to restructure management at SA Taxi after the group announced that “the cyclical headwinds facing SA Taxi’s business model have now become more structural in nature.” Negative sentiment flooded the gates after Transaction Capital announced that its SA Taxi business would unlikely recover to pre-pandemic levels over the short to medium term. Closing at ZAR28.11 on Monday, the 13th of March, negative sentiment saw the price action gap down in post-market trading to open at ZAR20.21 on Tuesday, the 14th of March, further plummeting to open at ZAR17.39 on Wednesday.  To curb excessive bad debts within its SA Taxi business model, Transaction Capital reaffirmed to shareholders that “management is proactively addressing this through an aggressive restructuring to right-size the business and position it for future growth.” The South African lender aims to simplify the SA Taxi business model and implement better quality credit risk analysis when issuing loans. 

To make matters worse and cement negative sentiment, Transaction Capital announced that it forecasts half-year core earnings per share (EPS) from continuing operations to decline “by greater than 20%, but no more than 50%.” Amidst this meltdown, market participants have begun asking questions regarding CEO David Hurwitz’s disposal of Transaction Capital shares worth ZAR51-million towards the end of 2022. 

Sources: Bloomberg, Daily Maverick, Moneyweb, Trading View

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