QIWI - Low Resilience to Macro Downturn Is Priced In

We reiterate our BUY rating on QIWI while cutting our target price by 54% to $16.40 per share, having revised downward the valuation of the payment services business. We think 2020 earnings will take a hit from declining betting-related revenues and a slowdown in payment volumes for the SME segment, which includes the self-employed. QIWI failed to find a suitable buyer for Rocketbank, so the bank's operations will be wound down this year with a R1.5 bln loss. QIWI's dividend policy for 2020 targets a payout of at least 50% of adjusted net income, which implies an at least 9% yield. The stock is trading at an attractive 2020E P/E of 6 and 2021E P/E of 4, which supports our BUY recommendation.> Bearish growth guidance. QIWI expects adjusted net revenues to grow 3-13% this year (our forecast is 3.5%), with growth for the payments segment projected at negative 3% to positive 5% (we expect negative 0.8%). It expects adjusted net income to expand 10-30% (our forecast is 14.7%). Besides the overall weak economic situation, this bearish guidance is driven by declining betting-related revenues due to the cancellation of major sporting events, a slowdown in payment volumes for the SME segment (including the self-employed) and a R1.5 bln net loss from Rocketbank.> Betting-related revenues under pressure. The Russian betting market will be bruised by the cancellation of major sporting events, such as UEFA Euro 2020 and the Olympics (moved to 2021). This is clearly negative for QIWI, for which 41% of payment net revenues came from betting in 2019. As quoted in Kommersant, Liga Stavok expects the market to shrink 30-35% in 2020, while BetCity anticipates a contraction of up to 20% and Bookmaker Rating a decline of up to 10%. We expect QIWI's betting-related revenues to decline by 11.7% (after 49% growth in 2019) to R7.6 bln, or 36.5% of payment revenues in 2020. In general, we believe betting is not cyclical; however, we see the risk that in the absence of big sporting events, clients might switch to illegal online casinos (QIWI processes payments for legal betting companies).> Rocketbank winding down. After failing to find a suitable buyer, QIWI announced that it is winding down Rocketbank operations. It said the process should be completed by year-end and it expects a net loss of up to R1.5 bln from the segment this year (earlier, we expected a sale, and thus no loss from Rocketbank).> Changed dividend policy. The dividend for 4Q19 of $0.22 per share has a record date of April 6. The company targets a payout of at least 50% of adjusted net income for 2020 (versus the 68% paid for 2019 and the 65-85% range stipulated in last year's policy). A 50% payout would imply a 9% yield based on our earnings estimate, which is in the low end of the guided range.