Kaspi.kz

Moat: 3/5

Understandability: 3/5

Balance Sheet Health: 4/5

Kaspi.kz operates a leading Super App business model in Kazakhstan, providing a suite of services such as payment processing, e-commerce, and fintech solutions for both consumers and merchants.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview:

  • Kaspi.kz operates primarily in Kazakhstan through its Super App which delivers:
    • Payments Platform: Facilitates transactions between consumers and merchants, encompassing bill payments, e-commerce payments, and P2P transfers. A key aspect of this platform is the Kaspi QR service, which allows for quick, mobile-based transactions.
    • Marketplace Platform: Connects consumers with merchants through an online and offline marketplace, primarily featuring e-commerce and grocery delivery. Kaspi Travel and Kaspi Goods also constitute important parts of the Marketplace.
    • Fintech Platform: Includes products like buy now pay later options, consumer and auto loans, credit accounts and BNPL. These are accessible through the Super App, allowing consumers to apply for and manage their financing needs.
  • The company’s revenue streams are split between fees earned from transactions through Payments, fees and sales made through Marketplace, and net interest and credit related income generated by Fintech services.
  • Kaspi’s goal is to simplify people’s lives by helping to organize commerce in the digital space and make payments convenient.

Moat Analysis: 3/5

  • Network Effects: Kaspi’s Super App benefits strongly from network effects. The more users and merchants it connects, the more valuable it becomes. Their large user base and the wide acceptance among merchants create a significant barrier to entry for competitors, since competing businesses would have to reach the same scale to be comparable for the customers.
  • Intangible Assets (Brand Recognition and Data): Kaspi is one of the most recognizable brands in Kazakhstan with a very high consumer perception. Kaspi also collects considerable consumer data that it uses to enhance its offerings, make them more personalized and provide an advantage over competition by predicting needs and wants of its clients, thereby locking them into the app. While data isn’t as strong a competitive advantage as a network effect, it can contribute towards it.
  • Switching Costs: While these aren’t very high for consumers, they are elevated for merchants. If merchants were to switch away, they would potentially lose access to their loyal customers on Kaspi.
  • Limited geographic scope. While a leading company in the Kazakh market, it has barely expanded outside of it. It remains to be seen if the company’s advantages will translate to markets with existing competitors and very different dynamics.

While Kaspi possesses some moat characteristics, it’s not as strong as some other companies that boast network effect or brand as their primary competitive advantage.

Risks to Moat and Business Resilience:

  • Regulatory Changes: The regulatory landscape in Kazakhstan for financial services is still evolving. This leads to risk as changes in the regulations can change business model and create difficulties for Kaspi.
  • Cybersecurity Threats: The company has a lot of user data on file which makes it vulnerable to data and cyber attacks. These can undermine its competitive advantage if not well protected.
  • Macroeconomic Risks: Kaspi’s business is concentrated in Kazakhstan. The Kazak economy is influenced by oil prices, foreign exchange rates, political instability, and global economic trends. Fluctuations in the local economy can create significant challenges for Kaspi’s business and profits. This is a significant risk since the company has only began to expand outside of Kazakhstan
  • Competitive Rivalry: Kaspi faces several competitors across all its segments, namely regional and international payments providers, e-commerce websites and fintechs. Some of the companies with deep experience and ample resources will be able to make an impact on Kaspi’s operations. This requires continuous innovation and product refinement from the company.
  • Geopolitical Issues : As Kazakhstan is located near countries such as Russia and Ukraine, war and geopolitical instability may affect the local economy. It may also impact the stability of the local markets.
  • Reliance on Partners: Kaspi’s depends on various partnerships to function. For instance, the infrastructure on which it relies may break, which can lead to operational risk and may harm the revenue streams.
  • Acquisition Risk: As the company has pursued acquisition strategy in the recent years, this presents a risk of overpayment or misunderstanding cultural differences, which may hurt its core profitability.

Despite those risks, the company maintains fairly high margins, brand recognition and customer base, which will help it overcome any financial and economic hardship.

Financial Deep Dive:

  • Revenue Distribution: The business segments are:
    • Payments: Transactions, P2P transfers, mobile payments
    • Marketplace: E-commerce, travel, food delivery
    • Fintech: Loans, credit accounts, BNPL. The revenue breakdown shows that Payments and Marketplace have made up the bulk of its revenue recently, but Fintech is increasing in its contribution. Marketplace grew 59%, Fintech grew 48% and Payments grew 30% in 2022 compared to the previous year. The year before that, 2021 compared to 2020, the growth rate in payments, marketplace and fintech were 15%, 177% and 46% respectively.
  • Margins: The company maintains very high gross and net margins across its operating units, indicating a very good underlying business model. As of 2023, the net income was KZT 372.9 billion with a revenue of KZT 1.9 trillion. The company has an operating profit margin of 24% with a net profit margin of 19%. ROE and ROIC are about 40% and 17% respectively
  • Profitability: The company has reported substantial and sustained profitability across its operating units over a span of many years.
  • Capital Allocation: The company invests into its business, as a business with high growth potential, but it also has been paying a dividend to the shareholders and repurchasing shares. This shows that management is focusing on returning wealth to shareholders as a priority.
  • Debt: Kaspi has been consistently reducing its debt. As of 30th September 2023, its long-term debt was KZT 108.3 billion, from KZT 442.7 billion in 2020, demonstrating a focus on financial strength. The debt structure is mostly in the form of bonds.
  • Cash: The company has been increasing its cash at hand as well. As of September 30, 2023 the cash and cash equivalents stood at KZT 496.7 billion, from KZT 193.1 billion in 2020.
The company is generating cash and it has a very good balance sheet with low debt and a high cash position. *   **Recent Concerns:**
  • In December 2022, Kazakhstan’s securities regulator has suspended trading in Kaspi shares after it was found that the share price was manipulated using social media. Kaspi responded by saying that they were not aware of any manipulation, and it’s possible they were targets of a smear campaign. Trading of the shares was resumed soon after.
  • In 2023, the company’s revenue growth was affected by macroeconomic conditions, including lower sales, higher borrowing rates and a slowdown in online commerce activities. It remains to be seen if the effects of those macroeconomic factors will continue in future.

Understandability: 3/5

  • The company operates in the relatively simple and easy-to-understand finance and e-commerce industries. While it offers a variety of products, its core business model is not hard to understand. However, since it provides so many different products, with so many different nuances, understanding all its business can be tricky, and may need time to grasp. Its financials are also very long and complicated with lot of adjustments needed for proper understanding.

Balance Sheet Health: 4 / 5

  • Kaspi has a robust balance sheet, with a solid cash position and low debt. Although the company has a lot of debt, most of it is long-term. It has been reducing its total debt while consistently increasing its free cash flow. The company is also profitable and continues to be. These points give the company significant financial stability and resilience in times of crisis.