Transaction Capital continues on its growth path
There seems to be no end to the good fortunes of this company, which listed in 2012. The share price gained 150percent over this period. An investment in Transaction Capital five years ago, with dividends reinvested, would have yielded investors a 30percent return per annum. For their interim period, they managed to grow their earnings by 17percent, despite harsh economic conditions.
Transaction Capital has two primary businesses: SA Taxi and Transaction Capital Risk Services (TCRS). Both operate in highly specialised and under-served segments of the South African and Australian financial services markets. Both divisions are market-leading businesses that are diversified and scalable platforms that leverage their skilled expertise, proprietary data and technology to create value for customers.
SA Taxi provides comprehensive financial, insurance and repair services to minibus taxi operators. The division offers a unique blend of vehicle and part procurement, retail, repossession and refurbishment capabilities with asset-backed developmental finance and insurance designed explicitly for the minibus taxi industry. They recently sold a 25percent stake to the SA National Taxi Council (Santaco) for R1.2 billion. This deal strengthened SA Taxi’s balance sheet and enabled them to settle approximately R1bn of interest-bearing debt, with the remainder retained to fund growth.
With 69percent of South Africa's households using minibus taxis, they manage to extend their double-digit growth rate. This division delivered 31percent growth in headline earnings. Their partnership with Santaco, going back two decades, is working very well and they have initiated a few new processes with them. One is financing lower risk customers at lower interest rates, and they will be moving into the banking space.
Another is the repositioning of their insurance business, not only to insure their own clients, but also other banks' financed clients as well as taxi operators who do not have finance. They also developed different rewards programmes which allow the entire taxi industry to participate by getting some type of rebate on the money they spend on things like fuel and parts.
TCRS is a technology-led, data-driven provider of customer management solutions in South Africa and Australia. They buy and manage non-performing loan portfolios for their consumer-facing clients, whether it is outstanding debt or subscriptions.
The division's scalable and bespoke fintech platform, combined with its technology and proprietary data, enables it to mitigate risk and maximise value for clients throughout the customer engagement life-cycle. This division grew 14percent.
Of the 26million credit-active consumers, close to 40percent have impaired credit records. This puts a strain on the business, but also present opportunities.
Ongoing cost containment continues to support TCRS’ improving cost-to-income ratio and earnings growth.
The company expects further robust organic earnings and dividend growth over the medium term, even without an economic upturn.
At R20 per share and price/earnings ratio of almost 19, the stock seems to be well priced.
Amelia Morgenrood is a PSG Wealth financial adviser based in Pretoria. Views are of the author and not necessarily the general view of the entire PSG entity. Transaction Capital shares are not held personally or on behalf of clients.