Transaction Capital on growth track
SA Taxi and TCRS help boost group’s interim earnings and dividend
JSE-listed Transaction Capital, which finances minibus taxis and collects debt gone bad, proves there is still scope to compete with major banks.
Through SA Taxi, the non-bank financial services group has carved out a niche in an area underserved by traditional lenders. This has paid off handsomely. The unit, whose customers do not qualify for bank finance and are therefore charged higher interest rates by SA Taxi, finances 12% of SA’s minibus taxi fleet. These 29,921 vehicles are owned by small- to medium-sized enterprises (SMEs), an area banks are accused of neglecting.
"Banks don’t have the resources to operate where we do," Transaction Capital CE David Hurwitz told Business Day on Wednesday.
SA Taxi does not rely on traditional credit-scoring metrics. Instead, it uses its own data on taxi routes. When a prospective customer applies for a loan, SA Taxi knows how profitable the proposed route is likely to be. This indicates the ability of the borrower to repay the loan.
The size of SA Taxi’s R8.9bn loan book was small change in the life of banks, such that it would not make business sense for them to invest in a dealership and an insurance unit, as SA Taxi had done, said Hurwitz.
SA Taxi repossessed about 200 vehicles a month, which was about 11% of its book. This was "not high" considering the failure rate of SMEs, he said.
Since listing in June 2012, Transaction Capital has grown earnings per share at a compound annual growth rate of 21%, considerably ahead of banks. Its interim results for the six months to March 2018 continued to buck SA’s growth slump. Core headline earnings climbed 22% to R310m, on strong performances from SA Taxi and Transaction Capital Risk Services (TCRS).
TCRS now owns 219 non-performing loan portfolios, representing debt of R20.6bn. TCRS estimates it will collect just under R2bn over 96 months on these books, giving them a present value of about R1bn. The unit aims to recover 2.2 times the discounted amount it pays for the books it buys.
Transaction Capital was not budgeting for an improvement in the business environment, Hurwitz said. "We expect it to remain stable, but hope for an upside," he said.
Daily trade in Transaction Capital’s shares has more than doubled since this time in 2017. This follows an accelerated book-build, which reduced founding shareholder Everglen’s stake in the company from 41% to 29%. International investors now account for 15% of the company’s investor base, from 5% previously.
Goldman Sachs and Norges Bank hold 2.96% and 3.26% respectively, according to Bloomberg data.
Large international shareholders could support Transaction Capital with large purchases, said Hurwitz. The group had R650m in cash to deploy on bolt-on acquisitions, he said.
Transaction Capital declared an interim dividend of 21c per share, 40% ahead of the prior period.