Yandex - Buy on Buying out Uber

We update our valuation of Yandex following the announcement of the deal to buy out Uber from MLU and SDG. We believe the deal is value-accretive for Yandex, as we see the assets of MLU as having upside to the valuation used for the Uber deal. We also see non-monetary benefits for Yandex: the opportunity to attract a strategic partner or more capital to SDG; synergies from integration between the e-commerce, food-tech and delivery verticals; and the ability to react more quickly to major trends in the fast-growing but less mature sectors. We raise our SOTP-based target price to $95.26 per share and reiterate our BUY on the stock.> What the deal implies for the valuation. Yandex agreed to pay $1.8-2.0 bln for 29% of its ride-tech vertical, meaning that the vertical was valued at $6.2-7.0 bln. The 33.5% in food-tech (Lavka and Eats), 33.5% in delivery and 18.6% in SDG were valued at $720 mln.> Where we see the valuation of these businesses. We value the ride-tech vertical at $11 bln, so the valuation for the Uber deal implies a 35-40% discount to what we see as the fair value. We value food-tech at $1.2 bln and delivery at $0.5 bln, but we do not yet attach an exact price tag to SDG. Our fair value for 33.5% of both the food-tech and delivery businesses would be $0.6 bln. Given the most recent transactions in the autonomous vehicles segment, we think the deal also entailed a discount to what we see as the fair value for food-tech and delivery.> Additional benefits. Now having full control over SDG, and also with the new regulatory initiatives for self-driving taxis, Yandex may find a partner or raise additional capital to the venture to scale up and speed up development, thus helping establish a proper price tag for the business. It also now has more flexibility to provide its food-tech and delivery verticals with the capital required to grow.> New driver emerging. Yandex's e-grocery experiments in Paris and London, as well as the first commercial contract for the deployment of its delivery robots (rovers) on US college campuses, are worth tracking. Should the company prove the competitiveness of its technology and gain significant market share in developed countries, thus enlarging the total addressable market for its new initiatives, this could be a trigger. > Model update. We have updated our model to reflect the most recent developments. The major changes made were higher cash burn related to the e-commerce vertical following the guidance revision to $650 mln of investments in the business (which come along with higher growth expected for e-commerce) and higher expected growth for taxis (the 2021 GMV guidance of 60% growth was above our estimate of 40%).