Investment journal 5.6.2019: Tinkoff equity raise

Yesterday, Christian Ryther, portfolio manager of Curreen Capital, came up with vlog entry on merits of investment journaling. I keep mine, a lot less structured than what is mentioned in the vlog, but investment journal anyway. I enjoyed the video so much that decided to publish my latest entry re Tinkoff :).

5.6.2019 Tinkoff update

So I have 3.4 % of my portfolio in Tinkoff purchased earlier this year for 18.1 USD/share. The reason for the original purchase was basically fast growth and low PE. Now my thinking is bit more refined but still basically the same. I blogged about my thesis earlier:

  • Expansion to new products drives growth
  • Big opportunities in home equity, car loans, cash and POS loans, merchant acquiring, online brokerage, some totally greenfield markets
  • No home price bubble, macro level consumer debt low
  • Good case profit growth 30% or so p.a for many years, P/E19 6x or under
  • Background underdeveloped financial market in Russia
  • Assumption that economy stays good because credit losses mount in downturn, central bank worried about fast credit growth
  • Good open management team, ddd by Vostok, Baring and Goldman and pays dividend so not worried about fraud risk

Q1/19 trends seem to support the growth thesis. Latest guidance indicates 60 %+ loan growth and that the new products are working.

But yesterday, 4.6.2019, they came with press release that they will raise more equity. Stock price dropped 4.5% so market didn’t like it. I didn’t like it either – why pay dividends if you need more capital?

The stated reason for asking more capital is growth. They need more capital to stay in the regulated capital ratio limits while they grow. The requested amount is 300 MUSD.

The whole balance sheet is 5775 MUSD and equity for common 646 MUSD. Market cap is 3384 MUSD so the dilution in ownership is about 10 %, but per share/fair value basis probably smaller/bigger, depending of the actual issue price and one’s perception of the fair value.

Issuance is quite big so they seem to have big opportunities ahead, which I take confirmatory evidence of my quite optimistic model published in my blog earlier.

With current 11% equity ratio 300 MUSD new equity allows 2700 MUSD or 47 % bigger balance sheet. If earnings grow in line with assets, the equation of 47 % growth and 10 % ownership dilution doesn’t sound like impossibly bad deal for the existing shareholders.

There was phone conference where management explained the situation but I was not able to participate.

Other negative is that the top managers and Oleg has been selling shares. These are always difficult and bit of a mindfuck for investors. Good explanation for the sales would be that they might be diversifying their assets, needing the money or securing their gained wealth. I’m not selling my shares because of this but you never know.

Global economy is sputtering but Russia has fared reasonably well. Currency has been stableish USDRUB 63-65 while oil has come down from 74 USD (brent) peak to 62 USD (-17%). Start of the year oil price was 54 USD so we are actually still higher.

Bond yield is lower than a while, which should help credit conditions, home buyers, consumption and CAPEX. Calvey was moved into house arrest and seems to be able to participate into St. Petersburgh economic forum. Press secretary even said the whole situation is regrettable. Manufacturing PMI went under 50 in May, along with other economies. We will see.

Disclosure: Long Tinkoff

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