It’s a rare occasion that I would mention a Russian company. In the past five years, I’ve only done so once (Yandex, January 2016), and even then, I wrote with a lot of caution. But this month’s company fits our megatrend of cashless societies. QIWI is a Cyprus-based company that focuses on the Russian market (plus surrounding nations) as a payment solutions provider. These are cash-dominated countries.
Although Russia has gone through a recession with geo-political tensions, wild currency swings, sanctions from Western governments and poor commodity performance, QIWI managed to thrive.
Let’s look at some of the important facts. First of all, they are consistently profitable on high margins, regardless of the recession. There’s a constant currency basis improvement. They have a network of 150,000 kiosks/terminals and more than 20 million mobile virtual wallets. They don’t have any net debt. They have a big dividend yield. They got a 19.5% CAGR for the earnings per share. Most platforms like AirBnB, Uber, and other sharing economy platforms, all use QIWI for payments within their regions of operation. And most of all, they are the industry leader within Russia and have the interest of the Russian Central Bank (through Otkritie) to buy the company (tender offer at $28 rejected by CEO, however they built a large stake in the open market). They are the one responsible for developing the BitRuble, Russia’s national cryptocurrency, and their CEO is the chairman of the Russian fintech committee.
They have a bit too much cash holding with no strategic allocation. However, they do have 3 subsidiaries called Rocketback, Tochka and Sovest. See the image below for the purpose of each subsidiary.
The company is led by Sergey Solonin, who made headlines for taking a 9-month world trip last year. You can see his Instagram here. At the announcement of his following absence, the stock plummeted for a short while, but since thrived again. The company did fine without his in-person attendance. Mr. Solonin spent his time abroad to further the vision for the company and make new connections. As the chairman of the Russian fintech committee, it provides some trust to investors that their relationship with the Russian government is alright.
Some risks will remain. First of all, the stock is correlated to the Ruble, which is performing poorly and is expected by the majority of analysts to continue performing poorly. Furthermore, they will lose some growth against internet banking, which is not as mature as it is in more developed countries. On top of that, VKpay, which is a payment solution from the largest social network, poses a serious threat. Meanwhile terminals are becoming less useful and are mostly used by labor migrants. These migrants were underserved until QIWI, but the number of migrants that need to use QIWI is slowing down. Lastly, their new ventures still need a lot of growth, even though Sovest should be starting to charge interest rates and can not continue the current path for market share.
All in all, the growth prospects remain too cheap to pass up on. You could consider QIWI the PayPal of Russia, at less than 1% of PayPal’s market cap. In Russia there’s a proverb: “One who does not take risk, does not drink champagne”. That’s the case with QIWI. I’ll pass on the champagne for now but will keep a close eye on the company and might invest at a later point.