17 Nov Investors Mutual, Sandon Capital to target A2B chairman at AGM

Source: Financial Review

Two of the biggest investors in A2B, formerly known as Cabcharge, will vote against the re-election of Paul Oneile as chairman.

A2B, formerly known as Cabcharge, is facing a shareholder revolt in which two of its biggest investors will vote against the re-election of chairman Paul Oneile at Thursday’s annual general meeting.

Activist fund manager Sandon Capital, which holds 5.8 per cent of the company, and Investors Mutual, which holds about 11 per cent, will vote against Oneile’s re-election, the company’s remuneration report and the award of performance rights to chief executive Andrew Skelton in protest at the company’s proposed new strategy and what they say is a lack of oversight, accountability and transparency at board level.

A2B, which operates the 13cabs network, outlined a four-year growth strategy in September.

Sandon founder Gabriel Radzyminski wrote to Oneile last week, saying the fund manager did “not have confidence in your leadership of the board of the company” and questioning a new strategy that is designed to grow A2B’s payments platform.

“The presentation was full of naïve optimism and lacking in detail. In our opinion, the strategy endorsed by the board is poorly considered, likely to deliver shareholders continued disappointment and lead to further value destruction,” Radzyminski wrote.

While shares in A2B have risen 14 per cent since the start of the year, the stock has fallen more than 64 per cent over the past five years, as the taxi industry was rocked first by the arrival of Uber and other ride-sharing challengers, and then by the pandemic.

Investors Mutual portfolio manager Marc Whittaker says CEO Skelton has done a good job of lifting A2B off the canvas over the past five years, but says the company is at an inflection point. While he believes the company has a lot of potential and should be a beneficiary of the reopening trade after COVID-19 lockdowns, A2B hasn’t enjoyed nearly the sort of bounce as other reopening stocks.

“I think that partly reflects the lack of discipline and oversight by the board in controlling management and making sure that the business has been run in the interests of all stakeholders, not just one or two,” Whittaker says.

He points out the company has spent about $30 million on research and development over the past four years, but “when you dig a little bit deeper and ask what the accountability framework is around that spend, what’s your return on investment metrics, there’s no answer. And then when you ask the board to account for that, again, there’s no answer.”

Bid to crack payments sector

A2B laid out a plan in September to increase its addressable market to $5.5 billion, $4 billion of which could come from grabbing a small slice of the $660 billion-a-year payments market by expanding the customer base of its payment services from taxi drivers to a broader range of SMEs.

But Sandon and Investors Mutual question whether A2B can realistically hope to crack the incredibly competitive SME payments sector, where it will go up against the likes of Tyro and Square.

The A2B camp is sympathetic to the frustration of investors who are tired of waiting for a share price re-rating that hasn’t arrived, despite A2B looking like a bargain; with a market value of $160 million and $80 million of property on its books, A2B’s operating business is effectively being valued by the market at just $80 million, or two times pre-pandemic EBITDA.

Insiders defend the SME payments push as a sensible way to recycle the technology and capabilities designed for the taxi sector into a broader customer base, while spending on functions like a sales force can be ramped up and down as the business grows. Big licks of shareholder capital are not required for this growth option, contrary to the fears of some investors.

A bit more patience is required, the A2B camp says, as the company emerges from a difficult five years, when it has still managed to pay $187 million in dividends.

‘An insult to shareholders’

But Investors Mutual and Sandon don’t feel the board and management are as aligned to the prospect of a waiting game as shareholders are.

Skelton’s pay is a nagging issue. Radzyminski’s letter says the CEO’s annual total pay doubled between his appointment in 2014 and June 2019, but the group’s profits fell 68 per cent and the shares fell 56 per cent over the same period. Skelton’s salary has fallen 5.5 per cent from that 2019 peak, but the stock is down just under 25 per cent.

The long-term incentives attached to the proposed grant of performance rights from Skelton appear to have rubbed salt into the wound, with the hurdle rate set at just 4 per cent compound annual growth in absolute total shareholder returns. Radzyminski says it is “far from challenging and is an insult to shareholders who have seen a significant erosion in the value of their shares over many years”.

Whittaker is also not impressed at the fact the board owns only a small number of shares. Oneile has just 91,968 shares, while Skelton owns less than $90,000 worth, despite being paid $10 million since 2011.

“There’s just a lack of alignment – a lack of transparency and a lack of alignment,” Whittaker says.

Sandon and Investors Mutual believe other disappointed shareholders will use Thursday’s AGM to send a message to Oneile and the board. The question, of course, is how many.

For its part, A2B is clearly alive to the frustrations of its investors and would dearly love to see the stock re-rate as the Australian economy gets back to full mobility. The smoke signals from inside the camp suggest the board and management are prepared to provide more detail on the plans to unlock the value that both the company and dissident shareholders see.