Weekly Valuation  – Valutico | 29 July 2022

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Magnit is a Russian food and pharma retailer headquartered in Krasnodar. According to the company, it has around 260,000 employees and operates more than 5,500 supermarkets, over 100 hypermarkets and nearly 500 drugstores in a total of over 1,500 locations in Russia. The company is dual listed on the London and Moscow stock exchanges.

When Russia invaded Ukraine, the share prices of many Russian companies tanked. On the day of the invasion and the days that followed, massive panic selling occurred and Magnit was not spared. It declined by ~99% in value to close at $0.012 per share in London before trading was suspended. 

This represents a market capitalisation for the entire company of $6 million. Analysts forecast that Magnit is expected to generate free cash flow of about $500m this year, giving the company a free cash flow yield of 8.333% (!!). On the Moscow Stock Exchange, where share trading subsequently resumed, Magnit is trading at levels close to its pre-invasion share price, resulting in a of roughly $7bn for the company and a free cash flow yield of ~10%. While there is some suggestion that the price has been artificially inflated politically, as foreign investors cannot yet participate in the market, there can be no denying that a good volume is being traded between willing domestic buyers and sellers. 

Valutico has analysed whether the London price (that Magnit is worth basically 0) or the Moscow price (that Magnit is worth ~$7bn) is correct, or whether the answer lies somewhere in between. We have set 31 December 2021 as the valuation date in order to leave politically influenced fluctuations out of the equation and have come to a surprising conclusion:

The market cap at the end of 2021 was $9 billion (RUB 533 billion). Our DCF WACC delivers a valuation of $10.8 billion (RUB 639 billion). Trading multiple valuations based on peers also make these results plausible. All in all, we estimate a valuation range of $ 9. billion (RUB 557 billion) and $ 12 billion (RUB 688 billion). The company could therefore have been considered undervalued at the time. 

With the war in Ukraine creating so much uncertainty it is incredibly difficult to make accurate earnings predictions, however defensive industries such as food retailing typically survive such conditions. We, therefore, consider Magnit to be massively (in London) to slightly (in Moscow) undervalued. 

Click here for the detailed valuation: link

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WISE PLC (formerly TRANSFERWISE)

Weekly Valuation  – Valutico | 22 July 2022

Link to the detailed valuation: click here

Technology stocks have had a difficult year. The same is true for fintechs, which combine the momentum of technology start-ups with the financial services traditionally offered by conventional banks. Wise (LSE:WISE) belongs to the fintech category. The company helps people transfer money between more than 50 government-backed fiat currencies at lower rates than those charged by traditional banks. In 2021 the company facilitated $76 billion in transfers and had more than 13 million customers.

The company is listed on the London Stock Exchange, employs 3,368 people and has a market value of £4.1 billion ($4.1 billion). The company not only offers low-cost international money transfers, but also debit cards that allow people to spend abroad without fees, accept local money transfers and manage accounts in multiple currencies. Wise is valued at 124 times this year’s projected earnings.

After slowly building the company, the founders floated it in 2021 at a price of £8 per share, giving it a market value of around £8 billion. The company has been profitable for four years.

Since then, turbulent macroeconomic and geopolitical conditions have caused a general stock market decline, and Wise was not spared the pain. . Its share price has declined by 42% this year and is down 55% since its listing a year ago.

Wise’s business is, however, proving resilient in the current economic downturn. It currently accounts for only 3.5%of all cross-border remittances, leaving plenty of room for growth as people move more than $26 trillion across borders each year.

It has achieved excellent sales growth figures of >30% for the last two years, which analysts expect to continue for at least another five years or so. It is also consistently increasing its profit margins which, combined with very low gearing levels, puts it in a much stronger financial position than most of its direct competitors (the likes of MoneyGram, Paypal and Western Union).  

Valutico Valuation

Using the DCF method, we calculated a WACC of 6.3%, which resulted in a valuation of GBP5.4 billion (range of GBP4.4 – GBP7.3 billion), somewhat higher than its current market cap of GBP4.1 billion.

The market multiple approach delivers a starkly different result: a valuation range of between GBP 1.1 and 2 billion using various multiples. This could either be interpreted as the company being substantially overvalued or as evidence of the fact that the company has distinguished itself from its peers with its robust financial performance during trying times, and positive outlook. Our view is the latter and thus we have excluded the market multiple approach from our concluded valuation range. . 

In conclusion, we rate the company as slightly undervalued (Market Cap of GBP4.1 billion vs DCF range of GBP 4.4 – 7.3 billion). 

Link to the detailed valuation: click here

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Weekly Valuation  – Valutico | 15 July 2022

Link to the detailed valuation

Just over a year after its IPO via direct listing in April 2021, Coinbase shares have already received their first sell recommendation from an analyst. This is on the back of an 85% decline in its share price since its all-time high of $368 in November 2021. As the global economy has shifted to a risk-off approach in light of inflationary and supply chain pressures, crypto and crypto-related stocks have suffered the most. In addition to the macro events, the crypto exchange operator’s business could face declining revenues due to building pressure on fee income. Coinbase earns the bulk of its revenue from trading fees that retail investors must pay when buying crypto through the popular trading platform.

Growing competition

Fee revenues can readily and quickly fall victim to competitive pressures – unless they are protected by a structural barrier to entry. The company’s revenue pressures are expected to increase over time. The fact that U.S. discount broker Robinhood is currently explicitly advertising fee-free crypto trading on its platform is already indicative of what could loom in the near future.

For this reason, analysts rate the risk profile of the crypto company as unattractive and issue “Underperform” ratings for the stock. Although a concrete price target has not yet been given, the news agency Bloomberg quotes a fair value of $95 from its study – the current price is just under $53.

A broader foundation is needed

Furthermore, the large dependency on retail banking is also seen as critical. However, there are positive prospects due to the high level of awareness – not least due to the IPO. This could enable Coinbase to score points with institutional investors as well. Moreover, additional offerings such as custody and trustee services as well as consulting and research can diversify the business model. The acquisition of the data platform Skew is already heading in such a direction.

Coinbase has recently benefited from the rally on the crypto market, but the competition is not sleeping. Now it’s up to CEO Brian Armstrong to reduce the company’s dependence on retail fee income. If that doesn’t succeed, the skeptics could end up being proven right. Accordingly, the stock remains a watchlist candidate for the time being after its share price massacre since the IPO.

Valutico Analysis

In our discounted cash flow calculation (Cost of Equity of 8.4% sith WACC of 7%) we have arrived at a valuation of $10.9 billion, with the sensitivity analysis delivering a range of $9 billion to $13.9 billion. In our market approach, we compared Coinbase with companies such as Block, Inc., CME Group Inc. and Robinhood Markets, Inc.. These confirm the concluded valuation range around the current market cap of $12 billion.

We therefore conclude that the company is fairly valued. 

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