Ahead of its AGM today, the company released a detailed update on its operations, including commentary on the financial performance in the first four months of the 2022 financial year.

By all accounts, the growth looks good. The group is expecting a “steady recovery” in SA Taxi and “high-growth earnings” from WeBuyCars and Transaction Capital Risk Services (TCRS). The latter two divisions bring the opportunity for international expansion.

The announcement discusses WeBuyCars first, a strong indication of where the group has been focusing its attention. Without doubt, this acquisition injected some serious octane into the share price.

The company points out the trend in South Africa of a growing number of first-time car buyers. This ties in with a general improvement in the LSM curve, as the middle class grows in our country. When you look through the noise and focus on the data, there are good news stories in South Africa.

WeBuyCars is selling almost 10,000 vehicles per month and is starting to move into smaller cities. To give an idea of the flexibility of the model, the enormous operation at the Dome has 1,400 bays and the Polokwane dealership has 175 bays. The company is also rolling out “buying pods” located in high traffic areas like shopping centres.

Approximately 30% of vehicle sales are online. Sales to consumers (rather than other dealerships) represented 16% of total online sales, which I interpret to mean 4.8% of group sales. That contribution has doubled in the past year.

Selling finance and insurance (F&I) products is key in this industry. WeBuyCars is placing significant focus on this, with 17% of all sales now including F&I. Transaction Capital knows how to run a credit business (thanks to SA Taxi), so I’m not surprised to see them offering vehicle finance as a principal i.e. on its own balance sheet.

Speaking of SA Taxi, the business has faced considerable challenges in the pandemic. People travelled less, with the negative impact on taxi utilisation hurting the operators and thus SA Taxi’s business.

With inflation in new taxi prices and major spikes in fuel costs, there are still pressures. Minibus taxi fares have increased by an average of around 9.3% per year since 2013, which provides great insight into the struggles of lower-income earnings in South Africa.

The recovery in this business is taking longer than expected, but Transaction Capital is focusing on quality renewed taxis (40% of loans originated) and other initiatives like the insurance business (SA Taxi Protect).

In TCRS, the business benefits from pressure on consumers. If there are efficient debt collection processes in place, then clients are more willing to extend credit. When done in a controlled manner, this is a critical source of grease for the wheels of the economy.

TCRS acquires portfolios of non-performing loans (NPLs) and there are more of those running around when times are tough.

I am a very happy shareholder in Transaction Capital. It is one of the very few companies that I will never sell. With substantial growth prospects, a proven track record in capital allocation and a particular knack for building clever vertically integrated businesses, I look forward to the release of interim results in May.

Disclaimer: the author holds shares in Transaction Capital