Australia | Nov 09 2009
By Chris Shaw
Cabcharge ((CAB)) reported a market share for October of 57.7%, a result Macquarie notes was largely flat on September but well below the 63.4% share reported in August. The analysis reflects the Macquarie Taxi Tracker, which includes all Macquarie trips paid for with an American Express card but doesn’t include E-tickets, blue dockets or branded Cabcharge cards.
While this skews results in favour of the Sydney and Melbourne markets, Macquarie still sees it as a reasonable reflection of industry conditions given these markets represent the highest level of competitor activity for the company.
The numbers show competition is increasing as the tracker notes Taxi Australia Serivces, which operates out of Lakemba in Sydney, has now established itself as the fourth competitor in the market with a share of around 3.4% compared to Cabcharge, GM Cabs with about 25% share and TaxiEpay with around 8.2%.
Given the decline in market share Cabcharge has experienced in recent months, Macquarie suggests the key issue is whether or not any cyclical increase in volumes can offset the acceleration in market share decline, as this issue will determine how Cabcharge stacks up as an investment proposition.
In Macquarie’s view the outlook is not so positive as earnings risk remains to the downside at present, while there is also the issue of an ACCC court case against Cabcharge to be resolved. This could also weigh on the share price in the meantime.
Credit Suisse similarly has some concerns over the earnings outlook, lowering its forecasts for Cabcharge to reflect a weak September quarter relative to the previous corresponding period. The change impacts on both FY10 and FY11 numbers, with taxi payment revenue forecasts cut by 7.3% in both cases to $84.8 million and $92.8 million respectively, which compared to the $87.5 million generated in FY09.
The changes mean Credit Suisse is now forecasting earnings per share (EPS) of 50.8c in FY10 and 57.6c in FY11, which compares to Macquarie at 47.9c and 51.3c respectively. Consensus EPS forecasts according to the FNArena database stand at 52.5c and 57.8c for FY10 and FY11. What has Credit Suisse more positive is its view the current decline in Taxi Service fees is due to cyclical factors rather than structural ones, meaning a recovery can be expected when economic conditions improve.
This sees Credit Suisse retain its Neutral rating on the stock, while Macquarie takes the view the downside risk to earnings means share price upside is unlikely, so to reflect this it rates Cabcharge as Underperform. Overall the FNArena database shows a total of three Buys, one Accumulate, two Holds and three Sell ratings, with JP Morgan one of those with a Sell rating given its view changes to the business model will be needed to deal with technology changes in the industry in coming years.
In contrast, Deutsche Bank rates Cabcharge as a Buy, arguing while the ACCC issue is overhanging the share price at present the market is factoring in an overly bearish outcome, meaning there is value in Cabcharge at current levels. The broker’s $6.80 price target reflects this, as the shares closed last week at a discount to this target.
The database shows an average price target of $6.53, while UBS has the most aggressive target on the stock at $8.30 dating back to its results review in August. Macquarie has the lowest target price of $5.62. Shares in Cabcharge today are higher and as at 2.30p the stock was up 10c at $6.37, which compares to a range over the past 12 months of $4.71 to $7.14.
