With plans to build the largest panel beater in South Africa and enter the metred taxi environment, taxi financier Transaction Capital says its defensive businesses are well positioned to grow even in tough economic conditions.
A subsidiary of Transaction Capital, SA Taxi currently finances around 25 000 of the 200 000 taxis on South African roads. It put 6 000 new taxis on South Africa’s roads this year. All of its borrowers are black-owned SMEs and 20% are women.
Transaction Capital said it created 1 900 SMEs through the refurbishment and refinancing of pre-owned vehicles in 2015.
According to CEO David Hurwitz, fewer than 90 000 taxis are financed in South Africa, leaving significant opportunity to increase the proportion of financed taxis and replace an ageing fleet.
Taxis account for 68% to 70% of all household and workplace trips in South Africa, Hurwitz said at the presentation of the group’s results for the 12 months to September. This has remained consistent over time, as has the group’s uninterrupted access to debt capital markets.
At an investment of R25 million, Transaction Capital expects significant cost savings from owning its own panel repair operation. “We’ve done deals with both Toyota and Nissan to ensure efficient parts procurement,” noted Hurwitz.
The panel repair facility will augment its Taximart business, which has refurbishment and direct sales capabilities, Transaction Capital said. It will also include a vehicle dealership to sell new and second-hand Toyotas and Nissans.
On its entry into the metred taxi environment, which was flagged in May, Hurwitz said Transaction Capital would finance both traditional metred taxi operators and Uber drivers, as well as launch its own metred taxi app. “This is in line with international trends, where different billing platforms are offered within the same taxi,” said Hurwitz, who believes that Uber has “opened up the South African mind set to metred taxi cabs”.
Excluding Uber, there are some 20 000 metred taxis on the road.
Approaching municipalities with caution
Hurwitz said that the adverse economic and credit environment has translated into demand from credit providers for the group’s risk services business, MBD. MBD buys books of distressed debt and also does agency collections on behalf of banks and retailers.
It has identified the municipal sector as a growth area for its collections business, but would approach it with caution due to the high levels of financial distress among municipalities, Hurwitz said.
MBD owns 154 principal book portfolios and is collecting on R14 billion. It has 5.7 million unique customers and is effectively collecting debt from one in two non-performing credit consumers.
For the year to September 2015, Transaction Capital grew headline earnings 19% to R393 million off organic growth alone. Its credit loss ratio improved from 4.2% in the prior period to 3.6%, as non-performing loans fell.
The group still has R800 million to spend on acquisitions within its existing business divisions, the same amount it had at the half year.
“Any acquisition opportunity will be weighed up against very strong organic growth activity,” said Hurwitz.
Transaction Capital declared a dividend for the year of 22 cents per share, 38% ahead of the prior period.