Transaction Capital is quite possibly my favourite company on the JSE. With a top-class management team and a strong portfolio of assets, I’m a very happy shareholder and I plan to hold the shares forever unless something goes badly wrong.
After a strong share price run in the aftermath of the WeBuyCars deal and subsequent transactions to increase the group’s shareholding in the business, the earnings have had to play catch-up. The share price is trading at the same levels as November 2021, with plenty of volatility inbetween. Over the past year, the share price is up over 33%.
The latest news is the release of interim results for the six months to March 2022. With core headline earnings per share (HEPS) up 28%, it’s another solid performance.
Return on equity has been 14% for the past two interim periods. Return on assets increased from 4% in the comparable period to 4.5% in this period. This means that the group is carrying less debt overall, as debt is what “leverages” up the return on assets into a return on equity. Put differently, this is a higher quality way to have achieved a 14% return on equity.
The interim dividend per share is up a whopping 74%.
The company believes that earnings and dividends can grow over the medium-term at rates in excess of pre-pandemic growth rates. This is a direct result of the relevance of the group’s businesses in the South African economy: WeBuyCars, SA Taxi and Transaction Capital Risk Services.
WeBuyCars has been an astonishing story, with core headline earnings up 58%. As Transaction Capital has been increasing its stake in the company, core headline earnings attributable to the group has increased by 122%. Unit sales increased by 41% and the F&I product penetration (finance and insurance sold as part of the deal) increased from 12.9% of units to 16.6% of units. This helped drive revenue growth.
Interestingly, 29.5% of sales were online and of those sales, 17.6% were direct-to-consumers. A year ago, just 5% of online sales were direct-to-consumer. Watch this space, as friends in the UK tell me that buying a car online is a common practice there.
WeBuyCars has recently expanded into Morocco. The group is looking to take this business model to global markets and will do so in a measured manner.
SA Taxi is also a great business, though it has come under a lot of pressure in the past couple of years. Core headline earnings fell by 4% as commuter activity was suppressed by civil and taxi unrest. This impacts the ability of taxi operators to afford loan repayments, driving higher credit loss and provision coverage ratios.
In positive news, demand for new and quality renewed taxis (QRTs) has exceeded pre-pandemic levels, which drives growth in loans and advances. The insurance business grew its gross written premiums by 14% and claims have largely normalised to pre-pandemic levels except in the credit life book which remains elevated.
Transaction Capital Risk Services (TCRS) grew core headline earnings by 25% and had a far busier year buying debt books, with purchases up 94%. This puts local activity above pre-pandemic levels, with conditions in Australia subdued as fewer books of non-performing loans (NPLs) are being offered for sale.
Overall, WeBuyCars is leading the way and TCRS is performing well. SA Taxi has had to deal with all kinds of challenges. As those hopefully go away, the strength of the business will position it for growth.
I really do love Transaction Capital. Did I say that already?
I love it too