Transaction Capital

20 May 2019 By PDSNET

Transaction Capital (TCP) describes itself as “an active investor in and operator of credit-orientated alternative assets”. This is a fancy way of saying that it goes where no one else dares to go in the new South Africa. It has made highly profitable businesses out of financing and servicing the burgeoning mini-bus taxi industry and also out of buying up high-risk debtors' books for a fraction of their face value and then systematically collecting the outstanding amounts. Both of these industries are risky, but both also have enormous potential to be profitable. Transaction Capital has made an excellent business out of finding high-tech ways to reduce the risks which leaves it free to exploit these two “under-served segments of the South African and Australian financial services markets” almost without significant competition.

Essentially, the company consists of two divisions:

  1. SA Taxi – This business finances, insures, repairs and sells mini-bus taxi’s in South Africa. It dominates the entire value-chain of the taxi industry. Almost 70% of South African households use a mini-bus taxi every day to get to and from work with more than 15 million trips a day. This makes SA Taxi a defensive industry that is relatively immune to the state of the economy.
  2. Transaction Capital Risk Services (TCRS) buys up non-performing loans in South Africa and Australia for a fraction of their face value and then makes an excellent business out of collecting them. At 31st March 2019, the company held 254 such portfolios with a face value of R23,5bn. This debt is being collected at the rate of R3,6bn per annum. As an example, during the six months to 31st March 2019, the company bought debtors’ books with a face value of R2,1bn for R404m.

Both of the businesses are relatively defensive. The worse the economy gets, the more non-performing debtors books there are to buy and the more people use mini-buses rather than owning their own vehicles. This makes Transaction Capital one of the best performing shares on the JSE. It is what we describe as a “diagonal share" – one which goes from the bottom left hand corner of your screen to the top right-hand corner over an extended period of time. Consider the chart since March 2014::

Transaction Capital (TCP) March 2014 to May 2019 - Chart by ShareFriend Pro

In its latest results for the six months to 31st March 2019, the company reported headline earnings per share (HEPS) up 17% - which gives the company a compound growth in earnings of 19% per annum for the past five years. There are not many JSE-listed companies that can claim that. And the company has excess capital of R1bn. In our view this share is a must-have for any private investor in South Africa because it exploits two exceptionally lucrative businesses which are both very much a part of the new South Africa.  


DISCLAIMER

All information and data contained within the PDSnet Articles is for informational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet Articles are based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any comment or opinion for any reason.



Share this article:

PDSNET ARTICLES

The US Jobs Market

International investors who trade on Wall Street are generally negative about any good news from the economy because it tends to make the monetary policy committee (MPC) more hawkish and less likely to reduce interest rates. The opposite is also true. But there comes a point where bad news is so bad that investors begin to fear that the US economy is heading

Jackson Hole

Once a year in late August central bankers and academics congregate in Jackson Hole to discuss the state of the economy and consider the way forward. Traditionally, the Chair of the Federal Reserve Bank (“the Fed”) addresses the meeting and gives direction to its thinking on monetary policy in the US. This year, the comments of Jerome Powell resulted in the

Choppies

Choppies is a supermarket chain which operates in Botswana, Namibia and Zambia. It is listed both on the Johannesburg Stock Exchange (JSE) and on the Botswana Stock Exchange (BSE). Notably, the company has resisted the temptation to re-enter the highly competitive and cut-throat retail market in South Africa, having exited that market in 2020 due to sustained losses. Despite

Gold Resistance

All investments throughout the world can be ranked on a scale from high risk to low risk. As a general rule, in the world of investment, risk and return rise together. In other words, as the risks in an investment increase, so does the return necessary to attract investors.

At the one end of the scale there are very low risk investments

Sibanye takes off

We have been writing about Neal Froneman and Sibanye for years now. Beginning in 2013, Froneman assembled the Sibanye group over a period of 7 years, buying up mining operations both in South Africa and America at bargain prices. Initially he bought precious metals producers, but more recently he has been diversifying into base metals like zinc and lithium which

The 16 Year Bull Trend

Since the Second World War, the stock markets of the world, including the JSE, have always tended to follow the New York Stock Exchange (NYSE) - and the NYSE is best measured by the S&P500 index (S&P) of its 500 largest companies.

For this reason, we believe it is important for private investors to constantly

CA Sales Revisited

Retailing in Africa is difficult with many of our leading retailers having attempted to open stores in countries to the North of us without notable success. These countries are often unstable and volatile politically. Getting adequate stock to branches has proved problematic and expensive.

It is not surprising therefore that a company has been

Bluetel

Bluetel (BLU) is a company involved in pinless top-ups, prepaid electricity, ticketing and universal vouchers. As such it is a company with substantial repeat business from existing customers. This type of business model is attractive to investors because it implies minimal working capital and strong cash flows.

Bluetel’s purchase

The Debtors' Book

A BIT OF HISTORY

Many years ago, in 1982 when I started this business (which became “PDSnet”), I ran advertisements in both the Rand Daily Mail (RDM) and in the Star – which were the two most widely read newspapers in Johannesburg at the time. At that time, we were a very small business and had no credit rating at all. Despite this the RDM immediately

WeBuyCars - Results

The financial results of companies show how profitable they are and give a good indication of their share’s risk and potential return. WeBuyCars (WBC) is a recent listing which came to the JSE on the 11th of April 2024. Unlike other listed motor vehicle companies, it is a company which specialises in the purchase and sale