The market loves Transaction Capital


The market loves Transaction Capital


Published Date: 2021-07-12 | Source: INCE|Community | Author: The Finance Ghost

The market loves Transaction Capital

Transaction Capital's share price has been hotter than a December day in Upington. Still, that didn't scare away institutional investors from piling into the company's capital raise last week.

The company easily placed over 33 million shares, representing 4.9% of the shares in issue before the placement. The bookbuild was "multiple times oversubscribed" which means there was far more demand for shares than there were shares available.

Transaction Capital is a market darling at the moment, with a buzz around the WeBuyCars deal in particular. Importantly, the underlying businesses in Transaction Capital have been doing well for years, driving a share price chart that is the envy of most JSE companies over the past 5 years.

Based on numerous discussions I've had with people in the market, the management team is highly regarded and considered to be particularly strong at capital allocation decisions.

The group's SA Taxi business is a truly unique South African business, operating a vertically integrated model in the minibus taxi industry. The company provides finance, insurance and other services to the industry that keeps South Africans moving, even if they are often moving in an illegal lane. With a return on equity (ROE) of 15.1% for the six months ended March 2021, despite the pandemic environment, it's a very impressive business.

The other major division is Transaction Capital Risk Services, which focuses on debt collection services. The company acts as principal (i.e. buys non-performing loan portfolios and then collects them) and as agent (i.e. collects on behalf of others in exchange for a fee). ROE was 16.5% for the six months to March 2021.

The exceptional ROE figure belongs to WeBuyCars, reporting 68.3% for the same period. It's little wonder that investors are supporting further investment in that business.

The new shares were issued at a price of R35.50 per share, representing a 4.4% discount to the closing price before the bookbuild was announced. It is customary for new share placements to be made at a discount, in order to entice institutional investors to commit capital to the business.

Disclaimer: the author holds shares in Transaction Capital


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