Cabcharge Australia Limited’s share plunge 8%

Cabcharge Australia Limited (ASX: CAB) has seen its shares drop by 7.6% to $3.78 in early morning trading, after the NSW government announced plans to cut the maximum surcharge for taxis from 10% to 5%.

“I’ve heard the concerns of customers that they’ve been taken for a ride by this excessive surcharge and that’s why we’ve listened and acted,” NSW Premier Barry O’Farrell said. NSW is following the lead set by Victoria in May 2013, following an 18-month inquiry into the state’s taxis.

Cabcharge electronic payment systems were in an estimated 97% of Victoria’s taxi fleet, as well as limousines and water taxis. Victoria also made changes to taxi licences, making a provisionally unlimited number available for rent for just $22,000 a year. At the time, taxi licences in NSW and Victoria were trading at close to $300,000.

The surcharge fees are added to the total fare for taxi users when they pay by credit or debit cards. BRW magazine estimated that the ‘notorious’ fee generated $89.6 million for Cabcharge in 2012.

NSW is also expected to allow consumers to use mobile apps like Uber, ingogo and goCatch to book taxis for the first time, another blow to Cabcharge. goCatch is also reported to be reducing its surcharge to 5%.

In a statement to the ASX, Cabcharge says its NSW taxi service fee income would halve from $28 million a year to $14 million, if the changes are enacted. The company says around 25% of the fee is channelled back to taxi networks to assist their costly service operations. Under the new legislation, Cabcharge says the networks will have to find other means to recover this lost income.

But the taxi industry is not the only one to feel the heat. Last March, the RBA introduced new rules to limit credit card surcharging. Qantas Airways Limited (ASX: QAN) and Virgin Australia Holdings (ASX: VAH), through Jetstar and Tiger Air, were cited as two of the worst offenders when it came to charging ‘unreasonable’ fees for bookings made via credit card.

Foolish takeaway

With Victoria and NSW cutting limits on taxi surcharges, other states could follow. Despite Cabcharge trading on a P/E ratio of 7.4 and paying a dividend yield of close to 7%, further falls in the share price are likely and the dividend yield will be unsustainable if earnings are hit. Cabcharge shares look more like a value trap rather than a value play.

Get our top dividend stock for 2014 - FREE!

Interested in our #1 dividend-paying stock? Discover The Motley Fool's favourite income idea for 2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2014."

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.