Transaction Capital - Sum of the Parts Valuation
Shares of JSE holding company transaction capital have come under significant pressure in 2023 and are down over 80% year-to-date. In fact, if you bought the shares on IPO in 2012 at R8 a share your investment would have lost money If you held all the way through when consideration for dividends is excluded.
In this post I will provide by thoughts on what I think the fair value of the shares are based on my sum of the part valuation and whether or not I think the shares are worth a punt at the current price level. Transactions Capitals business can be divided into three core segments: Nutun, SA Taxi and WeBuyCars. This post will assess the value of Nutun. The valuation of SA Taxi and WeBuyCars will follow in two seperate posts before finally assessing the value of the business as whole.
Nutun, previously known as Transaction Capital Risk Services, provides a range of business services to a global market. Its most significant business service, now known as Nutun Business Services South Africa, previously Transaction Capital Recoveries, acts either as a principal in acquiring and then collecting on non-performing loan portfolios, or as a service provider on an outsourced contingency or on fee-for-service basis.
Transaction Capital owns 100% of Nutun. Nutun has been the star performer of the transaction capital business in 2023 and has shown strong grown in revenue and earnings over the past three years. For the latest half-year results for the 6-month period ending 31 March 2023 Nutun generated R1.9 billion in revenue (R1.3 billion in HY 2022) and core earnings attributable to the group of R189m (R164m in HY2022). The revenue and earnings of Nutun for the past three years can be summarised as follows.
2021: R1.142 billion
2022: R1.295 billion
2023: R1.943 billion
Full Year Revenue: R3.886 billion (HY 2023 x 2)
Earnings Attributable to Group (HY):
Full Year Earnings: R378m (HY 2023 x 2)
In order to determine a fair valuation multiple for Nutun I have used the current valuation multiples of various SA Banks as a proxy for a privately traded debt collection business in South Africa and applied adjustments to the multiple where necessary. Overall I have applied a total risk adjusted premium of 30% to the PEs of the selected peer group of companies in order to account for the additional risk of Nutun when compared to a large SA bank.
Standard Bank: 8.29
First Rand: 11.11
Adjustment for less liquidity given privately held (10%): 0.798
Risk Premium for SA debt collection business in weak economy (20%): 1.596
Nutun Implied PE: 5.586
Nutun Fair Value: R378m x 5.586 = R2.112 billion