Many investors have bemoaned a lack of exciting recent IPOs, but last week, a compelling IPO from Kazakhstan came to the Nasdaq. And while the $1 billion IPO didn’t receive much media hype, Kaspi (NASDAQ:KSPI) has the potential to be a major hit with investors over the long term.
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I’m bullish on the Kazakh stock based on its excellent growth, the strong economic potential of its home market, attractive valuation, and large dividend yield.
What is Kaspi?
Kaspi is a super app from Kazakhstan that provides users with a variety of services, including an e-commerce marketplace, payments, and fintech (including banking and lending). U.S. investors can think of Kaspi as a combination of aspects of Amazon (NASDAQ:AMZN), PayPal (NASDAQ:PYPL), Affirm (NASDAQ:AFRM), and even WeChat all rolled into one company. Kaspi was founded in 2008 and is based in Almaty, Kazakhstan.
The company’s IPO raised $1 billion, and it’s valued at about $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 Fast
Within payments, Kaspi gives 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 fast — during the third quarter of 2023, Kaspi reported total payment volume of 7.67 billion tenge (Kazakhstan’s local currency), good for 42% growth year-over-year. The platform processed 1.1 billion transactions, a 34% increase year-over-year. Meanwhile, the company reported that it now has 12.6 million active customers, 15% higher than the year before.
At the same time, Kaspi’s e-commerce marketplace, which it says is the gateway to its ecosystem for many of its customers, is growing even faster than its Payments business. Kaspi reported total gross merchandise value (GMV) of 1.2 billion tenge on the platform in Q3, representing 50% year-over-year growth. Customers made 42.2 million purchases, 31% more than during the same period the year before. Also, the platform’s customer base grew to 6.9 million active users, 20% higher than the year before.
Lastly, Kaspi’s Fintech segment offers consumer-facing financial products such as loans and buy now pay later (BNPL) services. During the third quarter, total finance volume (TFV) for fintech grew by 41% year-over-year to 2.24 billion tenge. Active consumer loans grew 12% year-over-year to six million.
I like the fact that Kaspi’s business segments complement each other, creating a strong flywheel effect.
The Kazakh Market is Strong
While it flies under the radar of many U.S. investors, the Kazakh economy is quietly growing into a force to be reckoned with in Central Asia. The country boasts 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, commensurately raising living standards and reducing poverty.”
The country’s GDP grew by an impressive 5.1% in the first half of 2023, and the World Bank reports that consumer spending and foreign investment are strong. The rising economic tide in Kazakhstan should be good news for Kaspi, as the average consumer will have more income to spend on goods and services.
Compelling Valuation
Many IPOs in the tech sector are years away from turning a profit. In contrast, not only is Kaspi profitable, but it trades at a very reasonable valuation. The stock trades for just 10 times earnings, a steep discount to the S&P 500 (SPX) — which has an average price-to-earnings multiple of 21.5 — and an even bigger discount than other fast-growing tech stocks.
Surprisingly High Dividend Yield
Not only is Kaspi profitable, but it even pays a dividend, making it a rarity among newly-public tech-sector stocks. Kaspi sports an impressive trailing 12-month dividend yield of over 7%.
This sizable dividend yield dwarfs the S&P 500’s average yield of 1.5%. It’s rare to find a fast-growing company like this with an outsized dividend yield; most stocks offering dividend yields at this level come from slower-growing industries like telecom, energy, and tobacco.
The Takeaway
Kaspi is the type of stock offering something for all investors. It is a rapidly-growing company operating across a range of high-growth business segments, but it trades for an attractive valuation of ~10 times earnings and offers a significant dividend yield north of 7%.
Furthermore, the economic growth of its home market, Kazakhstan, puts it on solid footing for further long-term growth. Kaspi also has the potential to expand outside of Kazakhstan to other markets in central Asia and beyond (note that while the Kazakh market is compelling in and of itself, Kaspi already also has a presence in both Azerbaijan and Ukraine).
While the IPO didn’t receive a significant amount of fanfare, this is the type of IPO that investors should be excited about. I bought Kaspi, and I am bullish on it over the long term based on the growth in each of its business segments, the strength of the Kazakh economy, its modest valuation, and its significant dividend yield.
