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Second coming

8 October 2020 By Liam Proud

Investors eyeing Kaspi.kz’s $6.5 billion initial public offering can be forgiven for wondering what the rush is all about. Mikheil Lomtadze’s group is morphing from a Kazakh bank into a “super app”, spanning consumer credit and e-commerce. Yet floating in London before the transformation is complete, and while Covid-19 lingers, may be premature.

Kaspi’s financial statements tell a promising story. Revenue in recent years has grown at a healthy double-digit clip, reaching $1.3 billion in 2019. Its traditional lending business is slowly shrinking in importance relative to the faster-growing payments and e-commerce bits. Interest income was 51% of revenue last year, compared with 57% in 2017. Lomtadze is basically replicating the business model pioneered by Asian tech behemoths like Tencent: combine everything from payments to retail in one app, keeping customers and their valuable data locked in.

In that context, Lomtadze’s selling shareholders are accepting a rather unambitious price tag. A $6.5 billion equity value, as reported by Reuters on Thursday, is just 6.8 times the earnings Kaspi could generate next year. That’s according to Breakingviews estimates based on the company’s financial targets. Russian digital-banking peer TCS trades at 9 times next year’s earnings, using the median Refinitiv estimate. South American fintech PagSeguro’s multiple is 33.

Investing in a Kazakh company brings idiosyncratic problems. Kaspi’s regulatory filing details eight distinct risks related to its home country, including currency volatility and the political and judicial system. But part of the discount is down to haste. Kaspi would probably merit a multiple closer to PagSeguro’s in a few years, when payments make up a bigger chunk of revenue. Lomtadze is unlikely to get much credit now for the small but fast-growing e-commerce business. Finally, investors are apt to wonder how much bad debt is coming down the pipe, even though the company has slashed lending amid the pandemic.

Selling shareholders, including Goldman Sachs and Russian private equity group Baring Vostok Capital Partners, are admittedly staying invested. The float, which will only comprise existing shares, represents about 12%-13% of the company’s total. Still, it’s never reassuring when existing investors are willing to part with some potential upside – especially when a company’s best days are supposed to be firmly in the future.


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