QIWI - Overhang Risk to Remain Post-SPO

QIWI shareholders are placing an up to 12.5% equity stake, of which Otkritie FC Bank is placing 8.6-9.9% of equity, or 25-29% of its stake. This suggests the share overhang pressure may persist over the next 2.5 years (the term of the shelf registration). The CEO is placing 52-60% of his stake. The company's preliminary 2Q20 results were better than expected, while proceeds from the SOVEST sale could trigger a special dividend (with an up to 7% yield).> Placement of up to 12.5% equity stake. Following the publication of its form F-3 for the placement of up to 37.4% of its equity on January 16, QIWI filed a prospectus overnight that Otkritie FC Bank, Sergei Solonin (QIWI's core controlling shareholder and BoD chairman) and Boris Kim (CEO) are placing up to 12.5% of equity (7.82 mln shares including a greenshoe option). The free float assuming the over-allotment option is fully exercised will increase to 57.7% (from 45.3% as of June 30) - see the chart on the next page.> Share overhang pressure could persist for next 2.5 years. Otkritie FC Bank is placing 8.6-9.9% of equity, or just 25-29% of its stake (depending on whether the option is exercised). Given the terms of the F-3 filing, the share overhang pressure could persist for another 2.5 years. > CEO placing 52-60% of his stake. The timing of this sale caused us to raise an eyebrow given Kim's commitment to stay on as CEO for at least two years (he was appointed to the position last December) and also how much upside we see in the story (50% to our target price).> Preliminary 2Q20 results better than expected. QIWI projects payment services net revenue growth in 2Q20 of 2-5% y-o-y (see the chart on the next page), which is better than we expected and better than the company had guided (a single-digit-percent decline). The adjusted EBITDA growth forecast of 34-53% is very strong and much better than we were thinking, although we wonder if any one-offs may have contributed.> Proceeds from SOVEST sale could trigger special dividend. On July 15, QIWI completed the deal to sell SOVEST for a cash contribution of R5.8 bln (R92 per QIWI share or $1.3 at spot FX). We think that it might pay a special dividend from the proceeds with a yield of up to 7% (if all the proceeds are distributed). We had been expecting a dividend yield of 4.5% in 2020 based on a 50% payout ratio and 9.0% in 2021 based on a 60% payout. We welcome the sale of SOVEST and QIWI's shift toward reducing credit risk. We believe it should allow QIWI to focus more on its core payments business. > Valuation. We reiterate our BUY rating on QIWI and our 12-month target price of $28.86 per share (R1,870). We see QIWI attractively priced at a 2020E P/E of 11.2 and 2021E P/E of 6.7.