Many investors have lamented the lack of exciting IPOs recently, but last week saw a compelling IPO from Kazakhstan on the Nasdaq. And although the $1 billion IPO didn't generate much hype in the media, Kaspi (NASDAQ:KSPI) has the potential to be a huge success with investors in the long term.
I am optimistic about the Kazakh stock due to its excellent growth, the strong economic potential of its home market, its attractive valuation and its high dividend yield.
What is Caspi?
Kaspi is a super app from Kazakhstan that offers users a variety of services including an e-commerce marketplace, payments and fintech (including banking and lending). US investors can think of Kaspi as a combination of aspects of Amazon (NASDAQ:AMZN), PayPal (NASDAQ:PYPL), Confirm (NASDAQ:AFRM) and even WeChat, all in one company. Kaspi was founded in 2008 and is based in Almaty, Kazakhstan.
The company's IPO raised $1 billion and is valued at around $17.5 billion. It was the world's largest IPO since Birkenstock (NYSE:BIRK) went public last year. Kaspi also trades in Kazakhstan and on the London Stock Exchange.
Kaspi is growing quickly
In the payments section, Kaspi offers users the ability to make peer-to-peer (P2P) payments, as well as online and in-store purchases. Kaspi offers point-of-sale (PoS) systems that allow merchants to accept payments from Kaspi users or from any credit or debit card.
This payments business is growing quickly – in the third quarter of 2023, Kaspi reported total payment volume of 7.67 billion tenge (Kazakhstan's national currency), representing 42% year-on-year growth. The platform processed 1.1 billion transactions, an increase of 34% compared to the previous year. Meanwhile, the company reported that it now has 12.6 million active customers, up 15% from last year.
At the same time, Kaspi's e-commerce marketplace, which is the gateway to its ecosystem for many of its customers, is growing even faster than its payments business. Kaspi reported a total gross merchandise value (GMV) of 1.2 billion tenge on the platform in the third quarter, representing 50% year-on-year growth. Customers made 42.2 million purchases, up 31% from the same period last year. Additionally, the platform's customer base grew to 6.9 million active users, up 20% year-on-year.
The story goes on
Finally, Kaspi's Fintech segment offers consumer-focused financial products such as loans and Buy Now Pay Later (BNPL) services. In the third quarter, total financing volume (TFV) for fintech grew 41% year-on-year to 2.24 billion tenge. Active consumer loans rose 12% year-on-year to six million.
I like that Kaspi's business areas complement each other and thus create a strong momentum effect.
The Kazakh market is strong
While the Kazakh economy remains unnoticed by many U.S. investors, it is quietly becoming a force to be reckoned with in Central Asia. The country has a wealth of natural resource reserves, including oil, uranium and various minerals and metals.
The World Bank reported: “Sustained economic growth has transformed the country into an upper-middle income economy, correspondingly increasing living standards and reducing poverty.”
The country's GDP grew an impressive 5.1% in the first half of 2023, and the World Bank reports that consumer spending and foreign investment are strong. Kazakhstan's increasing economic recovery should be good news for Kaspi as the average consumer will have more income to spend on goods and services.
Convincing evaluation
Many tech IPOs are still years away from turning a profit. In contrast, Kaspi is not only profitable but also trades at a very reasonable price. The stock trades for just 10 times earnings, a significant discount to the S&P 500 (SPX) — which has an average price-to-earnings ratio of 21.5 — and an even bigger discount than other fast-growing tech stocks.
Surprisingly high dividend yield
Not only is Kaspi profitable, it even pays a dividend, making it a rarity among newly public tech stocks. Kaspi has an impressive 12-month dividend yield of over 7%.
This significant dividend yield dwarfs the S&P 500's average yield of 1.5%. It's rare to find such a fast-growing company with an outstanding dividend yield. Most stocks that offer dividend yields at this level come from slower-growing industries such as telecommunications, energy and tobacco.
Taking that away
Kaspi is a type of stock that offers something for every investor. It's a fast-growing company that operates in a number of high-growth business segments, but trades at an attractive valuation of around 10 times earnings and offers a significant dividend yield of over 7%.
In addition, the economic growth of its home market of Kazakhstan creates a solid foundation for further long-term growth. Kaspi also has the potential to expand outside of Kazakhstan into other markets in Central Asia and beyond (note that while the Kazakh market is compelling in its own right, Kaspi already has a presence in both Azerbaijan and Ukraine).
Even though the IPO didn't generate much fanfare, this is the type of IPO that investors should be excited about. I bought Kaspi and am bullish on it for the long term due to the growth in each of its businesses, the strength of the Kazakh economy, its modest valuation and its significant dividend yield.
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