Taxi vehicle shows promise after retool

Rank Outsider | A shaky few years at the consumer market’s tougher end would seem to damn Transaction Capital — until you look under the hood and kick the tyres

IT is the ultimate consumer industry, used by more than 15 million South Africans every day. Even with economic growth at a miserly 1.9% and a quarter of the country out of work, it is still raking in the cash.

So does this mean South Africa’s taxi industry is a dream investment, seemingly invulnerable to any recession and guaranteed to make a killing, no matter what?

If so, how would an investor get a slice of an industry that seems to be one of the few with enough sway to scare the government into exempting it from such indirect taxes as e-tolls?

The good news for investors who want a piece of the taxi industry but do not want to buy their own fleet is that there is the “safe option” of investing in taxis through the JSE. Transaction Capital, which owns SA Taxi Finance, listed on the exchange two years ago and finances the purchases of many of the taxis on the roads.

The flip side is that Transaction Capital has not exactly shot out the lights.

This week, it reported a 27% plunge in headline earnings and it still remains worryingly exposed to the pricklier side of the consumer credit market.

So is Transaction Capital a worthwhile investment?

History says no. People who bought shares at its June 2012 listing price of R8 a share would not be thrilled with the fact that its stock is now languishing at R5.65 a share.

Even if you add in the R2.10 a share “distribution” to shareholders last year, this still indicates that investors would be disappointed.

But savvy investors will also have noticed that Transaction Capital sold off two major albatrosses last year— unsecured lender Bayport for R1.3-billion, which it had bought in 2010 for R650-million, and payment service arm Paycorp for R937-million, which it had bought for R431-million in 2007.

Now, CEO David Hurwitz will tell you, Transaction Capital is primed to make big bucks.

Hurwitz has an unenviable task, trying to fill the shoes of Mark Lamberti, the Massmart founder who was CEO of Transaction Capital until recently and a man lauded as something of a demigod in the business sector.

But Hurwitz is right that if you focus on remaining operations — SA Taxi Finance and collections company MBD Credit Solutions — then it all looks far brighter.

Earnings at these “continuing operations” grew 28% to R148-million.

Hurwitz is predicting big things for the credit recoveries business, MBD, and says Transaction Capital spent R160-million last year buying various debt books that it now hopes to collect on.

These debtors books come from retailers, banks, gyms, the South African Revenue Service and municipalities in which people owe rates and taxes.

MBD’s earnings inched up only 9% to R47-million, but it remains the largest collection agency in Africa.

Vunani Private Clients’ senior analyst, Viv Govender, said although it was possible to make money from collecting these debts, regulations were making it harder for companies to do.

A far easier sell is Transaction Capital’s SA Taxi and assetbacked lending division, which did better than MBD , increasing earnings 15% to R78-million.

“The replacement of ageing vehicles continues to create a robust demand for the minibus taxi finance provided by SA Taxi,” said the company.

Interestingly, the amount of bad debt in the business remains relatively low — taxi owners who borrow from SA Taxi tend to repay. The company said its credit loss ratio of 5.6% was “below SA Taxi’s upper tolerance level of 6%”.

But still, 30.4% of SA Taxi’s loans are considered “non-performing”.

The tricky nature of the business is evident in the fact that, as Transaction Capital said, taxi owners tend to repay loans “irregularly”.

To make extra cash, SA Taxi has branched out into different areas: advertising in taxis and a new insurance vehicle, Khusela Taxi Insurance. It is also making a mint from financing bakkies.

Until now, Transaction Capital has not lived up to investors’ expectations.

But if you believe that the 180 000 taxis that roam our roads daily are not going to disappear any time soon, you would have to believe there is gas in its tank.