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Transcap’s bet on taxis and debt collection pays off

Headline earnings surge 18%.

Transaction Capital’s business is an odd mix of minibus taxi support services and debt collection, but what catches the eye is the rate of growth – SA Taxi, the main earnings engine for the group, grew 21% over the year to September, while the debt business, Transcap Risk Services, achieved a 15% rise in earnings.

This is not unusual for the group; in fact it’s slightly better than expected. But it is astonishing in an economy that is registering barely any growth at all.

The question then arises, can Transcap’s sprint be maintained?

SA Taxi has about 30 000 customers out of a taxi pool estimated at roughly 250 000. That’s about 12% of the market, leaving plenty of room for growth. The taxi market in SA has developed in an organic but chaotic manner, leaving it wide open for a player like SA Taxi to provide specialised finance and service to taxi operators.

Deep-level optimisation

What started out as a taxi financing business has developed into a full-service operation with auto repairs, spares, insurance and telematics to provide deep-level data on routes and fuel efficiency to help operators optimise their profits.

The loan book grew 16% to R10.8 billion with a credit loss ratio of 3.2%, down from 3.5% in 2018.

The debt collection business is nowhere near hitting a ceiling, says CEO David Hurwitz.

“We invested R1.1 billion in acquiring non-performing loans [NPLs] this past year, which is considerably more than the R639 million we invested in the previous financial year. We also expanded the asset classes we are exposed to by acquiring less risky NPLs such as write-off loans, loans which are in the legal process and recurring contractual loans.”

Listen to Nompu Siziba’s interview with Transcap CEO David Hurwitz on SAfm Market Update with Moneyweb:
 

The debt collection business is predominantly focused on SA, but has expanded into the Australian market, which Hurwitz says is six to seven times larger than SA’s. “Our market share in Australia is just 1% to 2%, so there is huge room to grow there.”

It invested R122 million in Australian NPL portfolios, nearly five times the level of the previous year, and acquired 25% of the leading debt administration business.

Another growth opportunity is Europe, where the debt collection market is fragmented and ripe for growth.

Transcap is able to translocate the experience and smart technologies developed in SA to these new markets.

The taxi business was boosted by financing demand for pre-owned vehicles, and a 20% improvement in insurance premiums written. A rewards programme for taxi owners and operators leverages the industry’s buying power to wrestle down the costs of fuel, tyres and other consumables.

The SA Taxi and Auto Repair business was established in March 2018 with salvage operations started shortly thereafter, resulting in a substantial drop in the costs of refurbishment.

Source: Transcap

Earlier this year the South African National Taxi Council (Santaco) acquired 25% of SA Taxi for R1.7 billion, with the first trickle dividend paid in June.

Key figures:

  • Net interest income for the year increased to R1.279 billion (2018: R1.1 billion)
  • Profit for the year attributable to ordinary equity holders of the parent company rose to R727 million (2018: R682 million)
  • Headline earnings per share grew to 117.5 cents per share (2018: 111.7 cents per share).
  • Over the medium term, the company expects earnings and dividend growth to match its historical performance.

 

Transcap share price

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Another success story. In a very negative environment this is good news.

The debt collection business is predominantly focused on SA, but has expanded into the Australian market, which Hurwitz says is six to seven times larger than SA’s. “Our market share in Australia is just 1% to 2%, so there is huge room to grow there.”

It must be all those SouthAfricans who emigrated there….

I remain disgusted that a company like Transcap is profiting from an industry that is a lawless, violent killing-machine. Surely ESG applies to Transcap and they have an obligation to show they are doing to improve safety and standards in the national disgrace called the taxi industry.

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