QIWI - Strong Business Recovery Continues

We reiterate our BUY rating on QIWI and raise our target price by 6% to R1,984 ($26.88) per share. We expect QIWI to deliver an attractive 8.3% dividend yield over next 12 months, and at a 2021E P/E of 7.3, the stock is one of the cheapest among payment companies globally. QIWI is enjoying strong momentum in the payments business and just made a long-awaited exit from the banking business, while we see low risk of adverse changes to betting regulation.> Strong recovery since June continuing apace... During the 2Q20 results conference call, QIWI reiterated that April and May were the most challenging months, while the strong recovery in June in key markets has continued into the following months. QIWI confirmed that the summer been strong for betting, as the most sporting events and competitions were stopped for half of the spring and there are now many events going on. The fast recovery in betting due to pent-up demand being satisfied now that sports are resuming should feed into 2H20, although growth may be somewhat muted by the high base from 3Q19.> ...which has triggered an upgrade to the 2020 above expectations. QIWI expects net revenue growth of 7-15% in 2020 and payment services net revenue growth of 3-10%, while adjusted net income growth is projected at 35- 50%. We now expect adjusted net income to expand 54% this year and 18.5% next year. See the chart on the next page for details.> Betting regulation unlikely to change in the medium term. As we discussed in our June 15 report, the Russian Boxing Federation has proposed that the regulations for bookmakers should be changed to make them accountable to a single regulator, which would also mean that betting payments would go through a single payment processing center. The federation's aim is to boost sports funding from betting-related payments (thanks in part to the legalization of the online betting market). We do not think that a switch to a single regulator would trigger growth in the legal segment, while a single payment processing center for the industry could create a monopoly situation. Given that the share of illegal players has been consistently shrinking, we do not think that changing betting regulation is a priority for the government. QIWI has said the government has decided to postpone discussing these proposals until the autumn and that the initial reaction from regulators and market participants to the proposal was generally negative.> Valuation. We reiterate our BUY rating on QIWI and raise our target price by 6% to R1,984 per share ($26.88 for the US-listed ADR at the prevailing USD/RUB rate of 73.8). We expect a dividend yield in the next 12 months of 8.3%. We believe that QIWI is attractively priced at a 2021E P/E of 7.3 and is still one of the cheapest stocks among global payment peers. QIWI's ADR liquidity has improved recently and the 100d ADT is now $9.3 mln. Uncertainty over the timing of the placement of Otkritie FC Bank's stake (34% of the equity) remains the key risk for the stock, in our view.