A stock from the east – Qiwi

Stock-from-the-east
Garry Laurence

Garry Laurence

Global Equities Portfolio Manager

Qiwi is a leading payment and financial1 services provider in Russia and the Commonwealth of Independent States (CIS). It has an integrated proprietary network that enables payment services across online, mobile and physical channels.

It has deployed over 22.3 million virtual wallets and enabled merchants and customers to accept and transfer over RUB 117 billion cash and electronic payments monthly. It connects more than 43 million consumers using its network at least once a month. This is reflected in the company’s financial results; in the third quarter 2019, Qiwi reported a 15% increase in total net revenue, a 62% increase in net profit and a 32% increase in payment services volumes.

We have owned Qiwi for a number of years now and have visited the company in Russia on numerous occasions. During that time, we have been impressed with management’s execution and see the company as providing good exposure to a growing payments opportunity in an underpenetrated emerging market.

Qiwi has over 136,000 kiosks and terminals, which effectively is an ATM business; however, these ATMs also enable the Russian consumer to set up an e-wallet and make payments electronically. As an emerging market, Russia remains a cash economy. Consequently, consumers use Qiwi’s kiosks to deposit cash more often than to withdraw cash.

Qiwi Kiosks and Qiwi Wallets help to pay for services with over 13,000 merchants, including state organisations, utility services, mobile network operators, banks, online stores and remittance systems. Qiwi, with the support of Visa, became the first payment service to issue virtual cards to enable internet purchases. The company also offers customers the opportunity to apply for a Qiwi Card, which has a joint account with Qiwi Wallet, and enables shopping both online and offline.

Founders, Sergei Solonin and Boris Kim have built out this ecosystem over the past 12 years. Since 2010, revenues have grown at a 25% compound annual growth rate. Recently, the pair announced that they will switch roles, with Sergei becoming Chairman and Boris moving from Chairman to Chief Executive Officer. We don’t believe this will change the growth trajectory of the business; the partnership between the two will continue and Sergei will retain control of the business through his substantial shareholding. The culture of this owner managed business will ensure it continues to evolve as the financial services industry evolves.

Qiwi is a similar business to Euronet Worldwide, but it has a stronger e-wallet business and greater connection to the consumer. Both businesses have a large ATM/kiosk business, as well as offering money transfer across geographies.

We have been perplexed by the large discount Qiwi trades at relative to other payments companies and expect that the stock price will eventually reflect the company’s positive fundamentals.

Since 2016, Qiwi’s revenues have doubled and in 2020, earnings are expected to be more than twice the levels of 2016. Despite this, the stock price remains at the same level. While the market was happy to pay a PE of 18x in 2015 and over 40x when it listed in 2013, it currently trades on a PE of 8x FY20 earnings. We expect Qiwi to eventually re-rate the same way Euronet Worldwide did in 2019, to the benefit of the portfolio and investors in the Perpetual Global Share Fund.

 

1. Information sourced from https://investor.qiwi.com/

 

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Qiwi is held in the Perpetual Global Share Fund.

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