South African Used Car Giant WeBuyCars Sets Eyes on $420 Million IPO

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South African online used-car platform WeBuyCars is gearing up for a public listing on the Johannesburg Stock Exchange (JSE) this Friday. The company is targeting a valuation of R7.8 billion (approximately $420 million) by issuing 417 million shares at R18.75 per share.

What WeBuyCars Does:

• WeBuyCars operates as a middleman, facilitating the buying and selling of used cars.

• In 2023, they sold over 142,000 vehicles and bought over 141,000.

Significance of the IPO:

• This listing marks a potential revival of South Africa's IPO market, which has seen limited activity in recent years.

• WeBuyCars' parent company, Transaction Capital, believes this allows shareholders direct access to a valuable asset.

Market Speculation:

• The R18.75 share price is viewed as reasonable by some analysts like Jimmy Moyaha of Lebowa Capital, considering the company's strong business model. He even sees potential for future growth to R25 per share.

• WeBuyCars is actively investing in AI, data, and analytics to boost e-commerce sales, a currently underperforming segment (22% of sales compared to 27% in 2022).

Cautious Notes:

• Some analysts express skepticism due to WeBuyCars' financial performance.

• Transaction Capital's recent financials show a decrease in earnings (14%) despite a 9% and 13% increase in car sales volume.

• The company's cost-to-income ratio also worsened from 57% in 2022 to 66% in 2023.

Overall, WeBuyCars' IPO will be a test case for investor sentiment towards South African tech companies. The company's future success depends on its ability to address profitability concerns and grow its e-commerce segment.

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