A 63 percent rally in Qiwi Plc (QIWI) in less than four weeks may be just the beginning for the electronic-payment processor as Russia eases restrictions that could have crimped its revenue, according to OAO Gazprombank and InvestCafe LLC.
Qiwi’s American depositary receipts have surged to $43.85 on May 23 from a nine-month low of $26.89 on April 28. The ADRs plunged earlier this year as Russia moved to tighten control of payment systems and imposed rules that could increase the cost of doing business for U.S.-based credit card companies including Visa Inc. and MasterCard Inc. The Bloomberg Russia-US Equity Index increased 4.5 percent in its fourth consecutive weekly gain.
Lawmakers dropped some provisions that could have limited online payments as they approved anti-money laundering legislation last month. Visa and MasterCard said on May 23 that they’ll keep working in Russia after the government agreed to consider easing demands made on them after the U.S. imposed sanctions linked to the country’s standoff with Ukraine.
“Traders are shifting their focus to Qiwi’s fundamentals as the credit card companies’ decision to remain in Russia signals an improving business environment,” Sergey Vasin, an analyst at Gazprombank, said by phone from Moscow on May 23. “The trend is positive for Qiwi through the end of the year.”
Vasin said he has begun covering Qiwi and expects to issue a recommendation and target price next month.
The company works in partnership with Visa, providing co-branded accounts marketed under the name Visa Qiwi Wallet. Those accounts increased increased 20 percent in the first quarter to 15.6 million, Qiwi Chief Executive Officer Sergey Solonin said on a May 21 conference call with analysts.
After Visa and MasterCard stopped processing payments at four Russian banks in March as the U.S. imposed sanctions, Russia passed a law creating its own national payment system and imposing rules for foreign companies that include fining them for denying services. Solonin said Qiwi doesn’t expect any of the new legislation to have much of an impact on its business in Russia.
Qiwi, which had more than tripled after it was listed in New York a year ago, expects net profit to increase between 27 percent and 29 percent in 2014, according to its May 21 earnings statement. Adjusted net revenue increased 46 percent in the first quarter to 1.9 billion rubles ($55.6 million).
“Investors are focusing on Qiwi’s improved growth forecast for this year and away from the fading geopolitical risks,” Timur Nigmatullin, an analyst at Moscow-based research firm InvestCafe, said by phone on May 22. He raised Qiwi to buy from hold on May 23, setting a price target at $52.37 per share.
Qiwi’s 14-day relative strength index reached a nine-month high of 80.5 on May 22. When a security’s RSI rises above 70, it’s a signal to some analysts that it is poised to fall. The stock has seven buy ratings and three holds, according to data compiled by Bloomberg. The 28 percent advance in the five days ended May 23 was the biggest weekly gain since its initial public offering a year ago.
The Bloomberg index of the most-traded Russian stocks in the U.S. increased to 88.75 on May 23 to complete the longest streak of weekly gains in 10 months. OAO RusHydro, the renewable energy producer, led the advance, jumping 19 percent.
United Co. Rusal (486), a Moscow-based aluminum producer, was little changed at HK$3.24 in Hong Kong trading as of 11:25 a.m. local time. The MSCI Asia Pacific Index rose 0.2 percent.
Russian stocks had gained as concern eased that Ukraine’s presidential election would be disrupted. President Vladimir Putin said on May 23 in St. Petersburg that Russia will work with the next Ukrainian president, even though the vote won’t meet international standards, after saying he’s withdrawing troops from the border.
Ukrainians elected billionaire Petro Poroshenko as president, two exit polls showed yesterday, handing him the task of stemming deadly separatist violence that’s threatening to rip the former Soviet republic apart.
Poroshenko garnered more than half of the vote, avoiding a runoff with as much as 57.3 percent support, according to the surveys. Ex-Prime Minister Yulia Tymoshenko came second out of 21 candidates with 12-13 percent backing, the polls showed. While most in Ukraine’s easternmost regions didn’t vote, Poroshenko’s success was welcomed in the U.S. and Europe.
The drama in Ukraine will weigh on investors’ risk appetite and shareholders in Qiwi are exposed to regulatory changes, according to David Riedel, founder of the Riedel Research Group Inc. in New York.
“Russian equities will continue to be shunned by most investors other than the bravest and most adventurous,” he said by e-mail on May 23. “I would be cautious on the enthusiasm for Qiwi payment system as the regulations and control there can be implemented very quickly if that avenue is being used to transfer money to avoid scrutiny.”
The Market Vectors Russia ETF (RSX), the biggest U.S. exchange-traded fund that holds Russian shares, jumped 5.4 percent last week to $25.72, the highest level since February.
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