Transaction Capital’s interim earnings growth demonstrates that the group has entrenched itself in a sweet spot across its two main divisions. Earnings growth of 21% to R254m for the six months to March comes despite — perhaps because of — weak economic growth, which has generally constrained profit.
In this environment, Transaction Capital Risk Services went on a book-buying spree and was able to buy 13 debtors’ books during the period, which is the same number it bought for the entire 12-month period to September 2016.
The difficult consumer environment means it is more difficult for banks and retailers to collect on nonperforming loans. These businesses would rather cut their losses and get their hands on cash. Transaction Capital then buys the books for less than 10c in the rand, collecting on average 2.5 times that amount (25c in the rand).
Not too shabby as business models go.
On the other end, its SA Taxi business has found a lending niche and shows no signs of slowing. SA Taxi grew its loan book by 16% to R7.8bn for the period — a rate almost four times that of banks during 2016.
Where banks have struggled to extend new credit to overburdened consumers, SA Taxi has found robust demand for loans to finance new minibus taxis, given that taxi transport constitutes nondiscretionary spending for many consumers and the national fleet is ageing.
It has now built such high barriers to entry in this market that any new competitor will have a tough time catching up. For example, in-house data and analysis enable it to assess affordability based on the likelihood of a route being profitable, given the number of taxis already servicing that route.
With the group paying a dividend 17% ahead of the previous period, analysts expect double-digit earnings growth for at least the next three years. This is a company to watch and possibly a stock to buy.
The last thing the South African mining industry needs is an upward revision in the Mining Charter’s equity ownership target to 30% from 26% without some kind of substantial offset.
Market talk is that the industry could agree to greater black ownership in exchange for recognition by the Department of Mineral Resources of the consequences of past deals.
Whether this is part of the third iteration of the charter is unclear, but it’s enough to send ripples through the industry and worry investors.
Bloomberg reported last week that Mineral Resources Minister Mosebenzi Zwane wanted the 30% ownership element in the charter. A draft of the new charter provoked an unusually outspoken response from the chamber.
Zwane gave no indication of ownership in his speech at the release of the department’s budget, though said the charter would be released soon.
At the chamber’s annual meeting last week, officials spoke of going two months without contact with the department on the charter, which is astonishing considering the chamber represents miners that generate 90% of SA’s mineral production.
It’s a racing certainty that if the charter does not reflect the chamber’s extensive inputs that the chamber will contest the charter in court, further delaying certainty in a volatile sector.
•Neels Blom edits Company Comment (blomn@bdlive.co.za)
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