TCS Group Holding: It’s a bank. It’s a fintech. No, it’s Tinkoff (BUY - initiation of coverage)

We initiate on TCS Group Holding (TCS, or Tinkoff) with a BUY rating. Our price target (PT) is USD 28.4/share, with 30% upside: we believe the stock is inexpensive. We see TCS as having the best of both worlds: conventional banking (profitability and franchise) and fintech (better DNA and a digital business model). TCS is expanding its business on its existing profitability, like a conventional bank and not on the next funding round. It borrows and lends on its own balance sheet to a well-established customer base, and it has a strong brand in Russia. On the other hand, its business model, growth profile and DNA are more fintech in nature. TCS is well run, on a robust ROE, and it knows how to sell. In our view, the Russian market still leaves significant room for a player as nimble and capable as TCS to expand into a wider client base in retail banking, and also potentially through the super app. Our 2020E P/E and P/TBV are at 7.2x and 2.4x (and 9.3x P/E and 3.1x P/TBV at fair value), respectively.