QIWI - Regulatory Risk Priced In

We upgrade QIWI to HOLD and downgrade our DCF-derived target price by 3% to R904 per share ($12.24 at USD/RUB 76). We think regulatory risks are now priced in, and the shares have fallen 29% in dollar terms since our downgrade in November 2020. > Cross-border transactions constrained in the short term but should gradually recover. In December 2020, CBR imposed restrictions on QIWI's settlements with foreign merchants for six months, which has negatively affected about a third of QIWI's net revenues from the payment services segment. It remains unclear whether the restrictions will be lifted in May and to what extent. Even if the restrictions are lifted, we think QIWI will be cautious and unable to fully restore its previous cross-border payment volumes straight away, especially for settlements where the final recipient cannot be identified (we estimate these settlements accounted for half of QIWI's total payment volumes with foreign merchants).> Key thing to watch is QIWI's new role in the betting market. The company has also confirmed that it is one of two companies to have applied to serve as Russia's Unified Interactive Bets Accounting Center (ETSUP). However, there is no guarantee that QIWI's bid will be accepted. The existing TSUPIS organizations (the centers for processing betting payments), one of which is operated by QIWI, will be replaced by the new ETSUP by the end of September, so we expect a decision in May-July. According to QIWI, even if does not win the bid to be a partner in the new ETSUP, it could still retain 30-40% of its betting-related net revenues (which can include acquiring, part of the e-wallet business, commissions related to top-ups and winning payoffs). Tighter restrictions on online gambling have supported the growth of the legal betting market, which will ultimately benefit all participants, including QIWI. > Focus on digital entertainment and self-employed. We believe QIWI has a good track record finding profitable niches, as has happened with betting, for example. The company is now aiming to increase penetration in its focus markets, including digital entertainment and self-employed, while also diversifying its business via the development of Factoring PLUS and its B2B Flocktory project.> Dividends. The BoD has approved a dividend payout of at least 50% of adjusted net income for 2021. We estimate that this implies a dividend of $0.89 per share to be paid this year (8.3% dividend yield), including a 4Q20 dividend of $0.34 (3.1% dividend yield).> Valuation. On our new estimates, QIWI is trading at a 2021E P/E of 7.2. Our earnings estimates are at the bottom end of the company's guidance (-30% y-o-y), as we prefer to remain conservative given the uncertainty. The upside risks to our model stem from whether QIWI is selected as the ETSUP payment processor and if it can restore its cross-border payment volumes quickly.