The best financial firm in SA?
Transaction Capital might have a limited focus, but good management and savvy deals are paying off handsomely
Transaction Capital is still considered by some to be a niche business.
Yet the company now has a market capitalisation of a hefty R22.6bn and, at R33.50 a share, it is at more than double its 12-month low of R15.
It has overtaken financial sector stalwarts such as Liberty Holdings (R17.8bn) and Coronation Fund Managers (R19.4bn).
It’s true that it operates in three focused business sectors, all of which, arguably, carry dubious reputations.
Its largest business is SA Taxi, the biggest lender to the minibus taxi industry. The others are Transaction Capital Risk Services (TCRS) — a debt collector, or what it politely calls “receivables management”— and the WeBuyCars used car business, where Transaction Capital is building up its stake to 75%.
All three business units have grown sales and earnings strongly in the six months to March 2021 above the comparable period. SA Taxi’s earnings were up 13% to R228m, TCRS’s rose 27% to R131m and the share of WeBuyCars, acquired in September 2020, made a maiden R113m contribution. Overall group earnings were up a cool 56% to R437m.
Says group CEO David Hurwitz: “We have entered businesses that have low levels of trust. Banks were reluctant to lend to the minibus taxi industry, but we could take more risk as we can rebuild an entire taxi through our own panel-beating operation. With fewer write-offs, we can tolerate a higher level of bad debt.”
Transaction Capital’s credit-loss ratio of 4.6% in the six months to March 2021, while down from 6.1% in 2020, is more than double the credit-loss ratio of the big banks, even during the height of Covid.
But SA Taxi’s loan collections have improved to 95% of pre-Covid levels.
Transaction Capital’s success has also attracted investor interest from the US, French and Dutch governments.
Hurwitz says it would have been hard to believe when the business started 20 years ago that it would invest in SA Taxi’s securitised bonds as part of its social responsibility funds. But taxis are, after all, considered to be a social good.
In the six months to March 2021 gross loans and advances at SA Taxi increased by 16% to R13.9bn. It lends to about 35,000 vehicles — roughly a third of all financed and insured taxis on the road.
Old Mutual Investment Group analyst Neelash Hansjee says the role of taxis in the SA transport sector is unlikely to diminish, given the incompetent attempts to improve the train and bus sectors.
“Taxi industry body Santaco has taken a