Capital in transit for long term gains?

Transaction Capital Limited (TCP)

Transaction Capital is trading at around R40 with the share price surging by over 90% in the past twelve months (over 700% since 2014). The company started paving its way through acquisitions and expansion during the 2021 Financial Year (FY21).

Joint venture agreement

Transaction Capital entered an agreement with Genki group through its wholly-owned subsidiary, Transaction Capital Risk Services International Proprietary Limited, during its FY19. This agreement exposes the company to credit-related investments. The agreement was, later in FY21, amended in respect of the “target assets”, these amendments included the following:

“credit-orientated alternative assets. ‘Assets’ include but are not limited to bilateral and multi-lateral loans, corporate and consumer related distressed debt, non-performing loans, insolvency claims, and other Special Situation Opportunities, as well as equity, partnerships, securitisation or other interests in any of the foregoing or in any business with a principal focus on any of the foregoing or in any business outside the Republic of South Africa.”

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WeBuyCars Acquisition

The group received approval from competition authorities to increase its stake in WeBuyCars to 74.9% through its TCMH wholly subsidiary. It further concluded another transaction to acquire the remaining 25.1%.

WeBuyCars financials

• The value of the tangible net assets of WeBuyCars on 31st March 2021 was R879 million, of which R268 million is attributable to the net asset value of the properties.
• The profit after tax attributable to WeBuyCars for the financial year ending 31st March 2021 was R384.9 million. Headline earnings grew 38% to R257 million for the six months ending 31st March 2021.

This transaction provided the group access to high growth earnings; Transaction Capital believes that the transaction will provide compelling opportunities for disruption.

Aside from expanding its operations, the company delivered robust organic growth through its continued operations outlined below.

WeBuyCars

Taking a strong position as the demand for used cars started to increase, the company, despite a decline in sales in August 2021 vs (previous comparative period) PCP, saw more consumers buying more used cars than new ones.

Changing to a digital economy, sales for cars via e-commerce increased, making up at least 30% of the company’s overall car sales in a month. Adding to its footprint, WeBuyCars secures more vehicle supermarkets, a Germiston Branch, and The Dome acquisition. 

SA Taxi operations

Managing the credit and insurance risk of their taxi industry clients, SA Taxi saw recovery from June 2020 with more vehicles financed by the company being on the road. Despite the challenging environment for SA Taxi finance, collections on the loans reflected steady recovery to pre covid 19 levels together with insurance services, though SA Taxi Protect.

Transaction Capital Risk Services

The group managed to resource its Transaction Capital Risk Services during the FY21. Despite the restrictions and new variants coming into play, the South African segment delivered strong growth over the period while fewer services were offered in Australia.

“We remain confident that the group can maintain a sustainable trajectory of superior high-quality earnings and dividend growth in line with pre-pandemic growth rates over the medium term.” The company commented on its outlook, after successfully raising R1.17 billion in equity capital, providing a stronger balance sheet for its FY21.

Transaction Capital is expected to release its 12-months results which end on 30th September and are due to be released by the 16th November 2021.

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Roundup.

During this period, as the global economy starts to recover and change from the normal way of living under the pandemic, many companies have started to position themselves to adapt and be part of the new economy. This may present a possible buy high and sell high scenario.

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Sources – EasyResearch, JSE Sens, Transaction Capital Limited, 

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