People often forget Russia is still a powerhouse of an economy, producing north of $2 trillion worth of gross domestic product according to the World Bank. While the Russian ruble continues to trade at just one and a half pennies on the dollar, plenty of business is being done in that part of the world.
Qiwi PLC (QIWI, Financial) has captured about 11% of the population, over 16 million people for its online payment services. Think of it as the PayPal (PYPL, Financial) or Square (SQ, Financial) of Russia. Yet, the company is profitable and pays a dividend, something that neither of its American counterparts does.
While there are tensions between the U.S. and Russia, there are opportunities to buy assets at bargain prices. Qiwi is one of them. The company books revenue from advertising via short message services that deliver advertising to the company’s users along with the payment confirmation notice. As long as people are using the service to make payments, they’re getting advertising messages. The company's strategy is simple enough, it is profitable and it is growing.
Since 2010, Qiwi has seen seen income rise from 693 million rubles to over 3.1 billion rubles ($46 million) on revenue of 27.7 billion rubles in the last 12 months. More importantly, it spends less than 50% of its net income on capital expenditures, right in line with PayPal. The stock should at least be on par with that price multiple, which at 33 times forward earnings would put Qiwi’s stock in the $26 range. If the market were to value the company on sales, like it does Square, then the sales multiple of 10 would put the stock north of $70 per share. Somewhere in there is the right price level, but below $15 is where the stock currently sits.
The problem is trust. The company is incorporated in Cyprus, which is known as a haven for money laundering. In addition, its customers are in Russia, which is not known to be a particularly free-market society.
Regardless, what matters is whether or not Qiwi will keep growing and producing a profit. If it does, then the stock is really cheap right now. Russia is already in a currency recession compared to the U.S. dollar. If levels reverted back to where they were just five years ago, Qiwi’s earnings would double in dollar terms. At this price, it’s worth a flyer.
Disclosure: I am not long or short QIWI.
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