Debt recovery, taxis key drivers
Transaction Capital’s results give view into state of economy.
Transaction Capital’s results provide an interesting view into the state of the economy. The two core traditional parts of the business – SA Taxis and debt recovery – show surprisingly strong results for the six months to March.
Core headline earnings came in at R437 million, up 56% from the prior year, making it a compound annual growth rate of 17% over the past seven years.
Transaction Capital’s business – focused around financing and servicing minibus taxis, debt collection and more recently the used car business, following the acquisition in September 2020 of 49.9% of WeBuyCars (negotiations are in play to increase this to 74.9%) – appears to have recovered from the lockdowns.
“What surprised us is the resilience of the South African consumer,” says CEO David Hurwitz.
“Our two core legacy businesses, taxis and debt collection, surpassed their performance in 2019, before the lockdowns hit.”
Hurwitz adds that debt collection revenues were up 8% over the last six months, while cost increases in this division were contained to 3%. “This shows that consumers are still able to service their debts.”
SA Taxi grew core headline earnings by 13% to R228 million. TCRS (Transaction Capital Risk Services, the debt collection business) grew core headline earnings from continuing operations by 27% to R131 million. WeBuyCars contributed R113 million to core headline earnings for the period.
Core headline earnings per share from continuing operations grew at lower rate of 43% to 65.5 cents, due to the value and earnings accretive issue of 59.6 million shares in the past 12 months.
The taxi industry was declared an essential service during the lockdowns, which meant it suffered proportionately less than other forms of transportation. The National Household Travel Survey released in March 2021 indicates a decline in commuter use of bus and rail services from 2013 to 2020 (down 28% and 64%, respectively), compared to a 16% increase in the use of minibus taxis over the same period.
The fact that commuters are choosing minibus taxis over other modes of public transport helped SA Taxi’s rebound.
However, taxi industry profitability will remain under strain due to increases in taxi prices and reduced passenger loads per trip. SA Taxi responded to this by offering refurbished pre-owned minibus as an affordable yet reliable alternative to buying a new vehicle. New vehicle loan originations for the period declined 3% compared to a 48% increase in quality renewed taxi loan originations.
Transaction Capital’s acquisition of 49.9% of WeBuyCars could not have been better timed, as consumers trade down from new to pre-owned vehicles.
WeBuyCars is a leading trader of used vehicles through its e-commerce platform and physical infrastructure. It also offers finance, insurance and other allied products.
As disposable incomes come under added strain and new vehicle prices rise, consumers will continue to trade down from new to used vehicles. Besides the constraints to affordability, the disruption of global vehicle production during the pandemic has led to stock shortages in certain new vehicles, driving demand for used vehicles up even further.
Roughly 8 000 vehicles were bought and sold in March 2021, 45% above pre-Covid levels. The company says its medium-term target to increase the volume of vehicles traded to 10 000 vehicles a month remains on track.
This shows consumers are able to service their debts