Kaspi's Expansion In Turkey Promises Long-Term Growth Despite Economic Headwinds

Key Takeaways

• Strategic acquisition in Turkey and advanced service integration are expected to drive long-term revenue and earnings growth through technology leverage and operational efficiencies.
  
• Expanding e-commerce and innovative product offerings will enhance market penetration and consumer engagement, boosting transaction volumes and income growth.
  
• The Hepsiburada acquisition may strain management focus, potentially affecting performance in the Kazakhstan market and impacting earnings and net margins.

Catalysts

Provides payments, marketplace, and fintech solutions for consumers and merchants in the Republic of Kazakhstan.

• The acquisition of a controlling stake in Hepsiburada opens significant market opportunities in Turkey, given its underpenetrated retail and e-commerce sectors. This move is expected to drive long-term revenue growth and potentially enhance earnings as Kaspi leverages its technology and service quality.
  
• The integration of advanced services such as financial solutions and payment processing into Hepsiburada's platform can augment net margins by increasing operational efficiencies and scaling the business model that has been successful in Kazakhstan.
  
• Kaspi's focus on expanding e-grocery services within major population centers can substantially increase market penetration and recurring revenues, thus positively impacting revenue growth and net income through strategic geographic expansion.
  
• Introduction of innovative products, such as business-developed deposits and gift cards, is set to enhance consumer and merchant engagement, driving marketplace transaction volumes and, consequently, revenue and net income growth through increased take rates.
  
• Turkey's economic growth potential and high e-commerce penetration provide a strong backdrop for Kaspi's future financial performance, promising to drive substantial improvements in overall earnings and revenue due to increased consumer demand and merchant activities.

Kaspi.kz Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Kaspi.kz's revenue will grow by 22.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 41.0% today to 44.1% in 3 years time.
• Analysts expect earnings to reach KZT 1942.3 billion (and earnings per share of KZT 10043.66) by about November 2027, up from KZT 972.1 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 0.0x on those 2027 earnings, down from 11.1x today. This future PE is lower than the current PE for the US Consumer Finance industry at 12.4x.
• Analysts expect the number of shares outstanding to grow by 0.59% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.89%, as per the Simply Wall St company report.

Kaspi.kz Future Earnings Per Share Growth

Risks

• Hesitant economic conditions in Turkey, combined with ongoing geopolitical risks, could hinder Kaspi’s efforts to grow the Hepsiburada platform, potentially negatively impacting consolidated revenue growth.
  
• The acquisition of Hepsiburada may stretch Kaspi.kz's management focus and resources, which could affect the performance and innovation capabilities within their core Kazakhstan market, impacting overall earnings and net margins.
  
• The variance in promotional events such as Juma and their timing might create unpredictable fluctuations in quarterly growth rates, complicating financial forecasting and impacting investor confidence in the stability of future revenues.
  
• Relying on investment grade ratings for potential debt financing introduces financial risk, as market conditions or rating downgrades could increase borrowing costs, potentially impacting net margins and profitability.
  
• Growth in new markets such as Uzbekistan, while offering potential, also carries execution risks concerning market strategy implementation and regulatory approval, which could delay or negatively impact expected earnings contributions.

Valuation

• The analysts have a consensus price target of KZT 140.62 for Kaspi.kz based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of KZT 172.72, and the most bearish reporting a price target of just KZT 91.69.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be KZT 4401.9 billion, earnings will come to KZT 1942.3 billion, and it would be trading on a PE ratio of 0.0x, assuming you use a discount rate of 8.9%.
  
• Given the current share price of KZT 115.54, the analyst's price target of KZT 140.62 is 17.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.