COMPANY COMMENT: Transaction Capital has a good business model
Transaction is a company to watch and possibly a stock to buy
Transaction Capital’s interim earnings growth demonstrates that the group has entrenched itself in a sweet spot across its two main divisions. Earnings growth of 21% to R254m for the six months to March comes despite — perhaps because of — weak economic growth, which has generally constrained profit. In this environment, Transaction Capital Risk Services went on a book-buying spree and was able to buy 13 debtors’ books during the period, which is the same number it bought for the entire 12-month period to September 2016. The difficult consumer environment means it is more difficult for banks and retailers to collect on nonperforming loans. These businesses would rather cut their losses and get their hands on cash. Transaction Capital then buys the books for less than 10c in the rand, collecting on average 2.5 times that amount (25c in the rand). Not too shabby as business models go. On the other end, its SA Taxi business has found a lending niche and shows no signs of slowing. SA Ta...
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