JSE-listed diversified services investment company Transaction Capital has posted a 38% year-on-year increase in core headline earnings to R603-million for the six months ended March 31.
Core headline earnings a share increased by 28% year-on-year to 83.7c for the interim period.
Further, the board declared an interim dividend of 33c a share, at a rate of 2.5 times cover based on the earnings for the six months, in light of the group’s strong financial performance, robust balance sheet and medium-term prospects, Transaction Capital said on May 18.
The company remains well capitalised, with adequate liquidity to execute on its divisions’ organic growth initiatives and to respond to opportunities arising from market dynamics, it noted.
While South Africa has entered a post-lockdown period, the economic recovery that the country started to experience in 2021 may be subdued this year, driven by frequent power outages, high unemployment, rising fuel and energy prices, inflationary pressures and other global economic shocks. These factors continue to drive sluggish growth across most sectors, resulting in reduced commuter activity.
“Despite these challenges, SA Taxi’s operational, credit and financial performance remains on track. WeBuyCars and Transaction Capital Risk Services (TCRS) continue to perform above our expectations, with earnings growing at rates higher than historic levels,” said Transaction Capital CEO David Hurwitz.
During the half-year, Transaction Capital began the strategic repositioning of its business models in line with their evolution over the years. Through its divisions WeBuyCars and SA Taxi, Transaction Capital enables the mobility of private and public commuters in South Africa.
“We see these businesses evolving further into a mobility platform. TCRS’s strategy is centred on the group’s vision to create a range of digitally driven business services as a trusted partner to a global client base,” said Hurwitz.
Additionally, the strategic repositioning of the group and the launch of its new branding coincides with Transaction Capital’s ten-year anniversary of listing on the JSE.
“We see it as an opportune time to reinforce our well-established business models which have underpinned our consistent growth and returns since 2012 while simultaneously defining our future positioning, through an evolution of the Transaction Capital brand,” he said.
“We remain confident in the group’s ability to continue generating superior commercial returns, while creating positive, long-term value for all our stakeholders and broader society,” he added.
WeBuyCars grew its headline earnings by 58% to R406-million during the six months, with the group’s attributable portion increasing by 122% to R251-million. Transaction Capital in August 2021 increased its effective shareholding in WeBuyCars to 74.2% and, as a result, now consolidates a greater component of WeBuyCars' earnings.
WeBuyCars launched its principal vehicle finance product during the six months under review to broaden its mobility offering to private consumers.
The offering combines SA Taxi’s competencies in assessing credit risk and providing vehicle finance, and WeBuyCars’ ability to efficiently underwrite and recover on the value of used vehicles. It is the first in a range of innovative mobility products aimed at disrupting the used vehicle ownership model in South Africa and which will continue to drive WeBuyCars’ high earnings growth trajectory.
Further, WeBuyCars' business-to-consumer e-commerce capabilities, which were introduced in 2021, account for about 18% of total online sales, up from about 8% at the end of the 2021 financial year.
This online sales strategy is balanced with ongoing expansion of WeBuyCar`s’ physical footprint, which has enabled the business to reach its target of 10 000 vehicle sales a month sooner than expected. In the past 6 months, WeBuyCars opened its largest vehicle supermarket at the Dome in Johannesburg with a capacity of 1 125 bays and has also opened smaller dealerships in Polokwane and Nelspruit with 220 and 370 bays respectively.
In the next 12 months, it plans to introduce a further three dealerships in various locations in South Africa.
“WeBuyCars is well-positioned to gain market share through its physical and e-commerce platforms by driving a differentiated customer experience enhanced by AI-led pricing, proprietary data sets and other technology advantages. We expect future earnings from WeBuyCars to continue to grow at similar rates over the medium term,” said Hurwitz.
Meanwhile, SA Taxi delivered headline earnings attributable to the group of R181-million, 4% below the comparable half-year period in 2021.
With the industry’s profitability under strain, taxi operators are under pressure to afford their loan installments and insurance premiums. Retail prices for minibus taxis have risen 6.6% since September 2021 to April this year, with the recommended retail price of a Toyota HiAce diesel vehicle now at R528 800.
At March 31, 2022, the 12-month average for petrol was 28% higher and diesel prices were 29% higher than a year ago. In the past, minibus taxi fares have been increased to absorb these cost pressures, with fares having increased by about 9.3% a year between 2013 and 2020.
However, no fare increases were levied over the Covid-19 period to aid financially constrained commuters. The industry is now assessing the medium-term impacts of these challenges and is expected to announce fare increases in the near future.
Despite the prevailing pressures on the taxi industry, almost all of SA Taxi’s operating metrics have improved when compared to pre-pandemic levels. However, the financial impact that the industry challenges have on SA Taxi’s clients is apparent in loan collection levels, which have not recovered to pre-pandemic levels, Transaction Capital said.
SA Taxi’s business model has evolved from a speciality financier within the minibus taxi sector into a vertically integrated mobility platform offering access to minibus taxi ownership, finance, insurance, maintenance and other allied services over the past 20 years.
“SA Taxi participates in the entire taxi industry value chain, which underpins its record of quality earnings. Our strategic focus in the second half of the current financial year will be on optimising our core business lines and dealing with the impact of the recent flooding of Toyota’s plant, in KwaZulu-Natal.
Further, to broaden our addressable market, we will also continue to look for opportunities to develop new offerings for the broader mobility ecosystem that leverage off SA Taxi’s market position,” said Hurwitz.
Meanwhile, TCRS’s headline earnings attributable to the group increased by 25% to R164-million for the interim period, which is at a rate higher than historic levels.
In anticipation of the medium-term effects of the Covid-19 pandemic, TCRS implemented a world-class technology-led work-from-home operating model, which is yielding higher productivity per agent. These capabilities position the business to help clients mitigate the impact of the global shortage of human resources and skills through a digitally enabled solution.
The digital customer services segment is an exciting opportunity for TCRS to leverage its South African rand cost base, local technology platform and intellectual property, as well as its experience in managing outcomes-based call centre operations to earn international revenue and create jobs locally.
“The evolution of TCRS into a global digital services business leverages the competitive advantage that we have built over the last two decades and offers distinct avenues for international revenue growth, particularly as South Africa grows as a popular destination for outsourced customer engagement solutions.
“For the remainder of the 2022 financial year, our strategic focus will be to accelerate the acquisition of purchased book debts in South Africa and grow the digital customer services business locally and internationally,” Hurwitz said.