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Transaction Capital drives organic growth for now

Bakkies the next big thing.

JOHANNESBURG – Giving back to shareholders money set aside for acquisitions would be a failure, Transaction Capital CEO, David Hurwitz said of the R1.2 billion the group still had spare after selling some of its businesses late last year and returning half the proceeds to shareholders.

“There are opportunities and over time we will deploy the capital,” Hurwitz, who’s hopeful that Transaction Capital will have done “at least some acquisitive activity” in the next 12 months, told Moneyweb.

Having effected the sales of unsecured lender Bayport Financial Services and payment services business Paycorp towards the end of last year, the group’s revenue is now derived solely from its asset-backed lending business and credit services division, which it has rebranded a risk services business and includes MBD Credit Solutions and software provider Principa Decisions.

Hurwitz told analysts at the group’s full-year results presentation on Tuesday that he wanted to build these businesses organically to be as “robust and large as possible”. Acquisitions were expected to be within these existing divisions, but that did not mean a third pillar to the business was completely off the table, he said.

The capital would likely be deployed over a number of transactions and might not be spent to buy a business. For instance, it could be invested in structural capital deployment, where credit providers had divisions they wanted to sell or outsource.

Non-performing loans fall

For the 12 months to September 30, Transaction Capital grew continuing headline earnings 17% to R330 million, with continuing EBITDA up 18% to R159 million. The group’s non-performing loan (NPL) ratio improved by 11% to 25.7%.

SA Taxi, which finances mainly independent minibus taxi owners who account for nearly 80% of public transport services in South Africa, saw NPLs fall from 31% to 27.7%. This was a result of strong collections, stricter lending criteria and the write-off of more than 1 000 entry-level Chinese vehicles that had been repossessed.

The business had diversified its revenue streams into insurance, telematics and the resale and refurbishment of pre-owned vehicles.

The group’s gross loans and advances were up 14% to R6.7 billion, with the number of loans issued by SA Taxi growing just 4%. This was “strictly by design”, said CFO Mark Herskovits. “We are targeting the quality of the loan book as opposed to quantity,” he commented.

MBD, which buys non-performing books of debt and collects the outstanding loans, struggled to grow its traditional revenue base in the consumer banking and retail sectors, but had tackled this through “aggressive cost management” and by providing collection services on municipal accounts,” Hurwitz said.

The tough consumer credit environment meant MBD’s services were in demand and the division acquired books to the value of R214 million over the year. But given the environment, these required more effort and expense to collect on and so return on sales was flat at 11.8%.

Opportunities in bakkie finance

Transaction Capital invested around R65 million into SA Bakkie, a bakkie finance pilot aimed at small business owners using bakkies for work purposes. Toyota were bringing 4 000 bakkies into the South African market each month, according to Hurwitz, and there were significant opportunities for growth.

Herskovits said it had been an “excellent year for funding”, with 15 institutions investing close to R3.3 billion of debt capital and eight of these being new to the group. The vast majority of this capital went towards SA Taxi and was raised on the same terms as before the collapse of unsecured lender, African Bank, Herskovits said. “SA Taxi is a very different business model and investors understand that and continue to support it,” he noted.

Based on a strong cash generation capacity, Transaction Capital has reduced its dividend policy from 4 to 5 times cover to 3 to 4 times cover, which means it will give more to shareholders. It declared a final dividend of 10 cents a share, bringing the total dividend for the year to 16 cents a share at 3.6 times cover.

“All the arrows are pointing in the right direction again,” Hurwitz said.

At 14:53, the company’s share price had climbed 1.29% to R7.85 a share.


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