Look for QIWI to Continue to Grow
QIWI (NASDAQ:QIWI) may sound like a tropical fruit, but it is actually a Russian payments company that recently caught my eye after it reported stellar year-over-year growth. The company specifically operates electronic online payment systems primarily in the Russian Federation, Kazakhstan, Moldova, Belarus, Romania, the United States, and the United Arab Emirates. It provides payment services through operating approximately 127,000 kiosks and 42,000 terminals in its payment processing platform.
The company also offers Visa Qiwi Wallet, an online/mobile payment processing and money transfer system that allows accountholders to pay for the products and services of merchants, as well as performs peer-to-peer money transfers through a virtual wallet in the online and mobile environment. In addition, it is involved in licensing software and trademarks. The stock is about 15 percent off its 52-week high, and I think that it is attractively priced after its stellar quarterly report.
In its most recent quarter, QIWI saw total adjusted net revenue of $52.6 million, an increase of 46 percent compared with the prior year quarter. Payment adjusted net revenue was $38.2 million, an increase of 51 percent compared with the prior year. Payment-adjusted net revenue growth was predominantly driven by an increase in payment volume and net revenue yield in its e-commerce, financial services, and money remittances market segments.
The company’s other adjusted net revenue, which is principally composed of revenue from inactivity fees, interest on deposits, and on overdrafts provided to agents, cash and settlement services, and advertising, was $14.4 million, an increase of 34 percent compared with the prior year. Inactivity fees for the first quarter were $3.6 million.
The company saw adjusted earnings of $29.9 million, an increase of 75 percent compared with the prior year. Adjusted earnings growth was mainly driven by revenue growth and continued operating leverage in the business. Adjusted earnings was 56.9 percent compared with 47.6 percent in the prior year. Adjusted earnings excluding inactivity fees was $26.4 million, an increase of 69 percent compared with the prior year. Adjusted earnings margin excluding inactivity fees was 53.8 percent compared with 45.2 percent in the prior year. Adjusted net profit $22 million, an increase of 72 percent compared the prior year. The increase was primarily driven by the same factors impacting adjusted earnings.
It should also be noted that the company saw some kiosk growth, though more improvement could be made here. The number of active kiosks and terminals was 167,713, an increase of 1 percent compared with the prior year, primarily driven by an increase in self-service kiosks partially offset by a decrease in other terminals. The number of active Visa Qiwi Wallet accounts was 15.6 million in the first quarter 2014, an increase of 2.6 million, or 20 percent, as compared with 13 million in the first quarter 2013. Finally, QIWI announced a dividend of 29 cents per share.
Sergey Solonin, QIWI’s chief executive officer, said: “I am pleased with the strong start to the year. Our strong financial performance demonstrates that we continue to execute and gain share in the fast-growing payments markets we serve. Looking forward, we will continue to focus on our core strategies of expanding the number of participants in our network, increasing the utilization of our services, and driving the adoption of Visa QIWI Wallet.”
To me, this little-known company is a buy. Both Visa and MasterCard are staying in Russia, which feeds QIWI’s bottom line. They are growing at a strong clip. Kiosk growth was just 1 percent, but active Visa QIWI wallet accounts grew 20 percent. Further, QIWI upgraded its 2014 outlook as compared to its previously announced outlook. Total adjusted net revenue is expected to increase by 24 percent to 26 percent over 2013, and adjusted net profit is expected to increase by 27 percent to 29 percent over 2013. Given these results and the outlook, I rate QIWI as a buy and assign a $51 price target.
Disclosure: Christopher F. Davis holds no position in QIWI and has no plans to initiate a position in the next 72 hours. He has a buy rating on the stock and a $51 price target.