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Transaction capital [JSE: TCP] stock analysis

About

Transaction Capital Limited is a South Africa-based investment holding company, focused on investing in alternative asset classes. As the name suggests, holding companies invest in a portfolio of assets/businesses, both listed and unlisted. 

Transaction Capitals strategy is clear: We invest in high-potential businesses in markets with historically low levels of client service and trust. This gives us untapped opportunities for disruption, innovation, and high returns.

Transaction Capital is currently invested in three unlisted businesses:

1. WeBuyCars (74.2% ownership)
2. SA Taxi (74.5% ownership)
3. Transaction Capital Risk Services (TCRS) (100% ownership)

WeBuyCars

WeBuyCars is known for its simplified approach to buying and selling used cars. In addition to its main business, the company offers services such as vehicle credit, insurance, service plans, car tracking and more. 

Why we love WeBuyCars:

• First mover advantage: Go-to name for buying and selling used cars
• Buying and selling roughly 11,000 vehicles per month
• International expansion on the horizon
• Have the backing of a listed company in Transaction Capital
• Even though they have their own financial services division, they can always integrate with TCRS to further drive the financial health of the company.

SA Taxi

SA Taxi offers access to minibus taxi ownership, finance, insurance, maintenance and other services. SA Taxi operates in various subdivisions, each with a unique purpose and contribution to the overall taxi industry:

- SA Taxi Finance: provides credit extension to taxi buyers. Each owner is evaluated as a small business and not solely on their personal credit score, enabling SA Taxi to extend credit in this niche, under-served market segment.

- SA Taxi Direct: sells new and refurbished taxis.

- SA Taxi Auto Repairs: refurbishment of repossessed minibus taxis

- SA Taxi Protect: comprehensive insurance products for the minibus taxi industry

- SA Taxi Autoparts: imports and locally acquires minibus taxi parts and sells it to minibus operators online.

Why we love SA Taxi:

• We might not always like them, but taxis arent going away any time soon. This industry is as robust as it gets in the South African context. 
• Offers a variety of integrated services to the taxi industry.
• Owns most of the market.

Transaction Capital Risk Services (TCRS)

TCRS acquire non-performing loan portfolios at attractive risk-adjusted returns. Simply put: The company buys non-performing loans, (either bad loans or high-risk loans), from other companies at a discount and attempts to collect the debt themselves. 

Soul Financial explains it best: Lets say you owe FNB R1000. FNB views you as a non-performing or high-risk client. FNB sells your debt to TCRS for R750. TCRS collects the full R1000 from you and makes R250 profit. 

If the company pays a discount for the loan and successfully collects the full amount, the difference is pure profits. They basically get paid to take on high risk. TCRS have exceptional technology, data analytics and artificial intelligence to help them manage their risk. 

Revenue drivers

Earnings contribution changed quite a bit from 2021 to 2021. This biggest change: WeBuyCars. This company has done extremely well and continues to be at the forefront of innovation, expansion and customer satisfaction.

2021 drivers:

• WeBuyCars 26%
• SA Taxi 43%
• Transaction Capital Risk Services 30%

2022 drivers:

• WeBuyCars: 42%
• SA Taxi 30%
• Transaction Capital Risk Services 27%

Revenue growth of segments 2021 to 2022:

• WeBuyCars: +122%
• SA Taxi: -4%
• Transaction Capital Risk Services +25%

Key Financials

• Share price: 3615c
• Market cap: R26.09B
• YTD return: -22.34%
• 1-year return: -4.49%
• 5-year return: +141.16%
• P/E: 11.2
• P/S: 4.49
• Dividend yield: 1.83%

The price has cooled down by roughly 30% since its high in April which has resulted in a lower P/E ratio. The share looks more attractive at these levels.

Bullish arguments:

- The industries that Transaction capital invests in are an integral part of SAs economy: used vehicles, taxis, and debt collecting. 

- The overall business continues to deliver strong financial results. 

- Structural expansion of WeBuyCars 

- International expansion of WeBuyCars and TCRS

- Inside ownership stands at roughly 21%

- Forecasted higher growth post covid

Risks:

- SA Taxi slow growth

- Competition increasing for WeBuyCars, such as Wheelie, We Buy Wheels, and Motus 

- High long-term debt levels

FinMeUp is taking a position in Transaction Capital in our demo portfolio. We believe that the company will continue to deliver excellent services to its clients and strong results to its shareholders. 

Just a friendly reminder - This is not financial advice. Always do your own research before taking a position. Content is for informational and educational purposes only.