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Market hits Transaction Capital despite solid results where WBC sparkles, grows 66%
It may well have been a case of buy on rumour, sell on fact for traders as Transaction Capital’s share price fell 5% in the wake of the release of its financial results for the year to end September – despite a 24% earnings rise and a 35% hike in the dividend payment. CEO David Hurwitz is unperturbed, projecting 20% plus growth into the forseeable future, the exponential expansion driven by exceptionally performing WeBuyCars (now 43% of group profit) and the debt collection and BPO division Nutun. In this results day interview with Alec Hogg of BizNews, Hurwitz multi-tasks his way to explaining why the future remains bright for the highly rated group – despite Mr Market’s negative initial reaction to the published figures.
Listen below, or click here for Spotify, and here for Apple Podcasts.
Please see the timestamped topics below
- 00:08 – Transaction share price
- 01: 43 – We Buy Cars performance
- 03:42 – We Buy Cars in Morocco
- 05:13 – We Buy Cars and Australia
- 06:29 – Expansion
- 08:39 – We Buy Cars listing
- 10:44 – 66% revenue
- 11:47 – Increasing stake to 89%
- 14:04 – Challenges of SA Taxi
- 16:34 – Nutun
- 17:01 – Nutun and International opportunities
- 19:16 – Projections for the next financial year
The below transcript of the interview with Transaction Capital CEO David Hurwitz
David Hurwitz, chief executive, on Transaction Capital’s share price going down 5% following results:
David Hurwitz [00:00:35] Thanks for having me on the show. I think the numbers are good. If you’re looking at the share price, I always say to you that my job is to run a good business and hopefully to deliver consistent earnings. And that’s what we’ve done now for 10 years at Transaction Capital. If you look at our share price, we’ve been trading between 38 and 42 over the last few months. So we’ve kind of come from the top of that range back into the middle or bottom end of that range. I try not to spend too much time worrying about the share price we build rated by the markets. We’ve got a good PE, we’ve got great access to capital if we need it. And if the share price is up or down by a few percentage points this way or that way, it doesn’t bother me. All in all, I’m happy with the earnings. Nutun’s got great growth prospects and headline earnings look fantastic. Tech is the one business still facing some headwinds, but we have great strategic plans for that, which we’ve talked about in our presentation.
On the performance of WeBuyCars
David Hurwitz: [00:02:38] Yeah. I mean, we were really, really happy with this business when we bought it; it was only trading about 5,000 vehicles a month. I think that the management team, but together with our input, has been able to take up to 12,000 vehicles per month. So there’s been great growth from that business. We’ve done better not only in expanding our geographical footprint and growing our market share, but we’ve done really well in online lead generation and e-commerce trading of vehicles. That too has worked fantastically. And, of course, we also earn more money by selling finance and insurance products together with the sale of the vehicle itself. So all in all, we’re really happy. I think we’ve probably been surprised on the upside. I mean, it was a very deliberate strategy to invest into this business. But I think what has happened as well is that there’s probably been a little bit of surprise on the upside as well.
On how much how much expansion potential still exists for the company
David Hurwitz: [00:07:06] Well, the interesting thing is that we sold about – on aggregate last year – we sold about 10,000 cars a month. At the moment, we pay about 12,000 a month. And our current market share at the moment is probably below 10% across the country. But if you look in certain geographies that are on the up and up and in Mbombela which is the new Nelspruit. Our market share was nought in Nelspruit, but we bought a lot of cars in Nelspruit, but used to track them down to Jo’burg and sell them in Jo’burg. And we’ve opened a branch there. We don’t think of it as a large branch. It’s got about 400 bays, or 400 cars, under a roof, but it’s by far the largest second-hand dealership in Nelspruit and all of a sudden we’ve got a big market share in Nelspruit. So I think as we expand geographically, we will be able to take more market share, but then also within our existing markets, we should be able to take market share as well. We’ve got a first mover advantage. We’ve got a fantastic brand. We are a trusted brand in the sector. We are online, which allows us to attract customers easier and quicker and engage with them digitally, which is what people want. I think we can take our market share. If we hit 15,000 per month, our market share will move into the mid-teens. We’ve got aspirations over the medium term to get to 20% of the used car market, which would be about 240,000 cars traded per year. So almost double the size of what we are now.
On how they are addressing the challenges of SA Taxi
David Hurwitz: [00:14:24] If I take a look at it, SA Taxi, as you correctly say, is less exciting at the moment. I think the exciting part is that we are able to leverage what we’ve got in India, SA Taxi, into the used car space, which is another add-on benefit of the WeBuyCars transaction. But the minibus taxi sector is under strain. We’ve had COVID, which impacted commuter movement. We then had higher fuel prices, which impacts operating profitability. Toyota increased prices of their car during this period and the industry was not able to pass a fair increase, which hopefully would have absorbed some of this financial pressure, the fare increase and even through in June this year. So it’s really been in a tough place, the minibus taxi industry. Then, of course, they’ve had flooding of the Toyota facility. The product that we finance in the main is a new Toyota minibus, of which nine have been produced for six months. So really a difficult, very difficult environment. We have to sit on our hands. We’ve had to adjust. We’ve done things like reduce our cost structure. We’ve been more selective on the credit we’ve been advancing. We have extended the loan, the term of our loans, which makes instalments more affordable. When there were no new Toyota minibus taxis, we started financing more of our pre-owned product, a vehicle that we’ve repossessed and rebuilt, which is cheaper and more affordable. So it helps us combat affordability but also helps us combat supply disruption from Toyota. I think we have reacted well, you know, still in a tough space and we don’t see the taxi business growing for the next year. But our other two businesses grow well. And in 2024, you would see the taxi business starting to grow and GoMo starting to positively contribute as well. That segment will do better from then on.
On Nutun and if there’s an international opportunity there
David Hurwitz: [00:17:32] So that’s exactly where we are, where we’re going. What we’ve seen is that we have got fantastic technology and a great ability to attract and train people and to bring these people into our environments and start operating. What we’ve done in Nutun is this year, 10% of our profits will be from global clients outside of Australia, so mainly in the UK. The services that we are providing are not connection services; these services will be what we call customer experience management. So if you think of the lifecycle of a customer, there’s lead generation, sales, onboarding, customer care, customer disputes, and then early stage connections. And then finally through late stage connections. We have made all of our money on late stage connections and we believe we can participate in all of those other services, not only in South Africa, but in many other geographies. We’ve done well in Australia, we’ve done very well in the UK recently. As I say, 10% of our profit comes out of the UK and we’ve got an eye on the US. So a real opportunity to, I think, broaden our geographies, our services and our sectors and operationalise everything from South Africa. So in pounds and hopefully dollars as well, maybe euros, but all around the cost base and to create jobs in South Africa, which we are proud about. We created about 800 new jobs in this division this year and about 600. Just below 700 of those were into the youth. So we have created youth employment.
The annual compound growth rate has been north of 20% in the last ten years. Are you able to say how you are going to do the same in the next ten years or what kind of forecasts are you allowed to share?
David Hurwitz: [00:19:39] Ten years is a long time to forecast stocks. I like to focus on 10 to 12 months, maybe two to three years. But, you know, looking at the opportunities, as I say, taxi is a business that will solidify over the next year, but the other two will continue to grow at above 20% and that should allow TSE to certainly grow next year again in the high teens. I would like to say over the medium term, the next two to three years, at a similar rate and maybe even slightly accelerated if we see a recovery in the taxi sector, which I would expect, as commerce starts contributing to our profitability. So we’re pretty excited about our growth rates being in line with what we’ve done for the last 10 years going forward.
Alec Hogg’s interview notes
- Beating Buffett: CEO David Hurwitz shares the four key ingredients of top stock Transaction Capital’s secret sauce
- Transaction Capital raises equity to finance WeBuyCars acquisition
- Transaction Capital: CEO David Hurwitz on WeBuyCars
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