Transaction Capital anticipating top performances from acquired non-performers

TRANSACTION Capital anticipated strong performances from acquiring and collecting on non-performing consumer portfolios in South Africa and Australia in the year ahead, chief executive David Hurwitz said yesterday.

The balance sheet was ungeared and liquid at holding company level, he said in a statement ahead of yesterday’s annual general meeting.

“Our capital strategy remains conservative and appropriate for the economic environment, with undeployed capital of about R775 million. We have allocated the majority of this capital to strategic organic growth initiatives. Earnings upside is possible as we deploy this capital over the medium term.”

He said they expected SA Taxi’s operational and financial performance to remain robust, with growth in loans and advances, improving net interest margins, credit performance within risk tolerances, and higher non-interest revenue.

Transaction Capital’s results for the half year to March 31 are expected to be released on May 13. The company invests in and operates credit-orientated alternative assets, including distressed debt, speciality credit and other alternative assets.

In February 2020, Transaction Capital founders Jonathan Jawno, Michael Mendelowitz and Roberto Rossi, through their respective shareholding vehicles, concluded an accelerated book-build to sell a portion of their interests in Transaction Capital.

The book-build was oversubscribed, with 69 million shares placed at R23.50 per share.

Hurwitz said Transaction Capital Risk Services and SA Taxi continued to be “highly defensive businesses with increasingly diverse revenue streams.”

Transaction Capital’s Consumer Credit Rehabilitation Index, which measures South African consumers’ propensity to repay debt, improved by 1.1 percent since December 2018.

Despite this slight improvement and a cut in interest rates, it remained uncertain if the higher unsecured credit extension reported in 2019 would benefit South Africa’s economic growth or consumer health.

The outlook for the Australian debt collection market, which was materially larger than in South Africa, remained stable. Despite high levels of household debt-to-income at about 190 percent, lower interest rates and greater leniency in debt affordability assessments were supporting moderate credit extension.

The domestic economic climate still favoured the acquisition of Non-Performing Loan (NPL) Portfolios from risk adverse clients looking for an immediate recovery against their non-performing loans.

“Higher unsecured credit extension in 2019 should support growth in this sector, which is underdeveloped and growing,” he said.

Unsecured consumer loan portfolios make up the largest portion of the Australian collections market. The division plans to accelerate the acquisition of NPL Portfolios, underpinned by its growing Australian database and analytics and pricing expertise.

“Across both our markets, we expect acquisitions of NPL Portfolios in the 2020 financial year to be in line with the R1.19bn invested during the 2019 year,” he said.

TC Global Finance was established in 2019 to pursue opportunities abroad. To date, €10.7m (R196.62m) had been deployed in TCGF, up from €1.4m at September 30, 2019.

At SA Taxi, SA Taxi Finance grew loans and advances in the mid-teens in the first quarter of this year.

Higher retail prices for vehicles, retention of Toyota minibus market share, the launch of a lower interest rate product for better quality customers and higher loan origination volumes on Nissan vehicles supported this growth.

Momentum in the sale and finance of refurbished pre-owned minibus taxis also contributed.

A portion of the proceeds from the South African National Taxi Council ownership transaction was utilised to settle R1bn of interest-bearing debt.