CRITERION From: The Australian May 30, 2013 12:00AM
Cabcharge Australia (CAB) $3.94
OSTENSIBLY, the future looks bleak for the taxi payments operator as the regulatory noose tightens around the neck of the once-fat monopoly goose.
That's also what makes Cabcharge such a fun jalopy to hitch a ride on: such is the taxi industry's endorsed and complex value chain that, like a lost cabbie, it could take some unexpected detours.
Cabcharge shares have been savaged by 96c (19 per cent) after the Victorian government's decision on Tuesday to adopt most recommendations of Allan Fels's taxi industry review, rather than do the usual thing and stick it in the bottom drawer.
The most dastardly proposal is to mandate a 50 per cent cut in the fee charged for processing Cabcharge and credit card fares, from 10 per cent to 5 per cent.
For sure, that's a blow to Cabcharge's clip-the-ticket monopoly. But such a move has been anticipated for years, with the Reserve Bank recommending a similar measure nationally.
While it's virtually compulsory for taxis to have a Cabcharge terminal, Cabcharge does face stiffer competition from rival credit card processing terminals. These operators have won market share by luring drivers with a cut of the surcharge, typically 2-4 per cent.
Given these entrants are subject to the surcharge cap as well, these will disappear and many drivers will default to one terminal -- Cabcharge.
It's possible that the inquiry bestows an own goal on Cabcharge, which has greater scope to cross-subsidise its national operations.
Another variable is the future of the 2.5 per cent component of the fee rebated to the taxi networks, most of which are owned by Cabcharge.
Other factors are that the Victorian reforms are phased in across three years and it's only assumed the other states (notably NSW, Cabcharge's biggest market) will follow.
Deutsche Bank analysts had already factored in a 5 per cent surcharge, applied nationally.
The firm, which plonked a sell on the stock, assumes additional loss of market share in Victoria and a fall in income from its licences.
Cabcharge derived 53 per cent of EBITDA from service fees (payments) in 2011-12, with a further 29 per cent derived from taxi licence and network income and 18 per cent from running buses.
While cab drivers will be required to have The Knowledge, no one can quite know how the reforms will pan out for Cabcharge, let alone long-suffering drivers and passengers.
Criterion had Cabcharge as a buy at $3.93 after chairman Reg Kermode's poetic AGM
