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Transaction Capital posts strong interims in tough climate

Continues to focus on organic growth.

JOHANNESBURG – Asset-backed lender, Transaction Capital said it “performed ahead of expectations” over the six months to March 31, reporting a 20% climb in headline earnings to R177 million and improving its credit metrics.

The group, which through its SA Taxi business finances independent SMEs in the minibus taxi industry, grew gross loans and advances 15% and reduced the value of non-performing loans (NPL). 

The group NPL ratio improved from 28.6% to 24.3% as a result of “effective collection strategies, stricter credit origination criteria and a decrease in repossessed stock held via the accelerated write-off of entry-level stock,” Transaction Capital said in a stock exchange filing on Tuesday. 

SA Taxi

SA Taxi grew headline earnings 34% to R99 million, off the back of strong lending growth of a higher credit quality, positive collection trends, improved quality of repossessed vehicles produced by Taximart, as well as a diversification of revenue streams.

Taximart is the business’s refurbishment operation, which is now one of the largest Toyota repair centres in Southern Africa, according to Transaction Capital.

SA Taxi also finances bakkies used by SMEs as income-producing assets and grew loans and advances in this division to R81.2 million over the period. Transaction Capital has separately allocated R50 million towards SA Taxi’s introduction of a pilot project to fund bakkies used by consumers for utility purposes, it said.

“SA Taxi’s cost-to-income ratio has increased slightly from 41.8% for the comparative period, but remains lean at 43.2%, mainly due to the investment into SA Taxi’s short-term insurance business,” Transaction Capital said.

Risk services division performs well

Having effected the sale of Bayport and Paycorp in the first half of the 2014 financial year, Transaction Capital established a risk services division, which now includes debt collector MBD Credit Solutions; SME financier, Rand Trust; and software provider, Principa Decisions. 

“The reconstitution of this division has yielded the desired results, with headline earnings increasing by 20% to R61 million,” Transaction Capital said. 

Non-interest revenue increased 14% to R457 million.

MBD continues to gain traction in the municipal sector, Transaction Capital said, as municipal clients required solutions to better manage credit and operational risks, as well as reduce costs, raise capital and improve cash flow. 

Targeting larger clients, Rand Trust grew loans 37% despite participating in the “depressed and hence challenging SME sector of the South African economy,” Transaction Capital said. 

Strategic outlook

At its full-year results for the 12 months to September 30 2014, Transaction Capital CEO, David Hurwitz said the group had R1.2 billion spare after the sale of some of its business.

“There are opportunities and over time we will deploy the capital,” Hurwitz told Moneyweb at the time.

In Tuesday’s announcement, however, the group said that management was “particularly circumspect in its acquisitive search”. This was a result of a challenging domestic economy, inflated asset values, and “attractive risk adjusted returns being achieved organically” through its established businesses, it said. 

Transaction Capital said it would continue to invest significantly in organic growth opportunities.

“Transaction Capital is pleased with the current composition of its portfolio and the defensive positioning of its divisions, which enables it to prosper despite South Africa’s challenging macro-and socio-economic context,” it said.

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