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Beating Buffett: CEO David Hurwitz shares the four key ingredients of top stock Transaction Capital’s secret sauce
Since David Hurwitz took over as CEO in 2014, Transaction Capital’s share price has delivered compound annual growth of 24.2% for shareholders. Even more, if you include the healthy dividend stream. BizNews editor Alec Hogg seeks the secret sauce driving one of SA’s top-performing companies. Conclusion: a Warren Buffett-type structure with power devolved to empowered entrepreneurs in operating units; disciplined capital allocation from a small team of executives at the centre; massive investment in and understanding of Big Data; and, critically, focus on ‘stigmatised’ sectors of the economy: debt collections, minibus taxis and second-hand cars. A masterclass in how to structure and run a successful enterprise in the information economy.
David Hurwitz on becoming an entrepreneur
We don’t regard ourselves as investors, we think of ourselves as owners and operators of assets. We focus heavily on buying well. We have focused heavily on running the businesses well. The market must do what the market does. And so far, it’s like what we’ve done. Coming out of Wits, I found some entrepreneurial guys who were backed by Michiel le Roux. They started something called Boland Financial Services. Andre du Plessis, who has just left Capitec, was also involved as a shareholder representative. It was a structured finance business. I was there for about 10 years. Eventually, HCI bought that and I was no longer a shareholder. The founders of Transaction Capital contacted me and said: “You’re an entrepreneurial guy, you can’t be on a job. You need to be building something that you’re a shareholder in.” And from there I joined them and we started building. We bought the taxi business, which they had started in an African bank. We bought that out of an African bank; we bought a payment services business. We started a micro-lending business together with some other entrepreneurs called Bayport. It has been a very entrepreneurial ride.
We would describe it as a vertically integrated minibus taxi platform. Essentially, we think of it as a platform that we can scale into other asset classes. Thanks to the data set it has from our tracking devices (a fancy word would be telematics), we identify the heavily travelled routes and the not so heavily travelled routes. We are able to understand which operators are good and which operators are bad, and that then enables us to make decisions. We overlay it with other types of data, such as commuter density. For example, when the Mall of Africa was built, it changed commuter patterns. So, we overlay with a whole bunch of other data sets and, of course, vehicle value data sets. That allows us to choose the correct routes. So, if a taxi operator is looking to run a route, we can say we know how many taxi operators run that route. We know how well they do on that route. We know if that route is over traded or not and whether an operator can enter that route. We engage with our client on credit decisioning and collect from our client. We track his movements and can adjust our payment accordingly because we know if he’s had a good or a bad month. You can’t ask someone for money if he doesn’t have it.
On taxi owners playing an instrumental part during July riots
The taxi industry is an extremely misunderstood industry from our perspective. We view it as kind of the heartbeat of our economy and most South Africans love to hate it. Sometimes there is good reason for that. Most South Africans also regard it as a fringe industry, which it really isn’t. It is probably a R50 billion industry. We calculate it pays close to R10 billion worth of taxes in the form of fuel levy and VAT. It is actually part of our economy. The July riots was an opportunity for them to say: we are proudly South African and we’re going to step up and do what we can do. There is also some self-interest there because they need people to move around. If businesses are burnt down, it kills commuting in the country. They felt it was wrong and they should try and stand up to it. They did a good job. Unfortunately, three or four weeks later, there was all the taxi violence in the Western Cape. So, a shining example of what they could do and then, unfortunately, a quick reminder that the industry can sometimes be a bit difficult.
Naspers wanted to buy that asset and the Competition Commission blocked it. That allowed us to get in otherwise, we would have missed it. What the Naspers deal would have given them was the ability to grow the e-commerce side of the business, probably a little bit quicker. We realised we could assist them on the finance and insurance side. The exciting thing is that we are operating on the older side of vehicles. We compete with everybody but if you think of Motors and Barloworld and Bidvest, they sell new cars and second-hand cars that are maybe three, four or five years old, but nothing older than that. Our average cars are nine to 10 years old. So, we’re entering that space where our peers are independent operators: no brand, no customer service, low customer trust. We are coming in with a trusted brand, a well-known brand, and people feel comfortable and confident to sell their car or buy a car through us. They have delivered this unbelievable tech platform where they value a car and buy it online, quickly and conveniently and then sell it on an e-commerce platform. We felt we could assist with the finance and insurance side. We also offer something along the line of cars as a service. You don’t have to buy a car and enter into a five-year contract. You could come to us and say you want a Toyota and we’ll sell it to you for R1 900; you’ll get the vehicle for 12 months with insurance, the warranty, with scratch and dent or rim and tie, whatever you want. At the end of 12 months, you can return that Toyota and upgrade to a new BMW or whatever it might be. Our end game is to get to a very digital-based and flexible car arrangement.
- Transaction Capital: CEO David Hurwitz on WeBuyCars
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- Transaction Capital increases shareholding in WeBuyCars to 74.9%
Cyril Ramaphosa: The Audio Biography
Listen to the story of Cyril Ramaphosa's rise to presidential power, narrated by our very own Alec Hogg.