Page 93 - RusRPTAug21

finance, ethical business and environmentally friendly operations and partnerships, as well as empowering and engaging all TCS’ people
· Next steps include working on climate-related targets, development of ESG strategy, implementation of ESG-related projects and services and recognised leadership among fintechs in Europe and potentially globally.
TCS Group held its third segmental deep-dive into Tinkoff Acquiring. We note the ambitious target for TPV to grow in the next three years at a 50% CAGR and the plans for international expansion, which are separate from the banking service’s international growth. In our view, TCS has both the understanding of SME clientele and the technical facilities to develop an operating system for commerce, including payments, analytics and other value-added services that will bring TCS close to the Shopify model. We keep our 12-month Target Price of RUB100 intact. Buy reiterated (17% ETR).
Business snapshot. The group is the #3 online acquirer after Sberbank and VTB, with a 15% market share in e-commerce acquiring and roughly a 2% market share in Russia’s card purchase turnover. However, the low market penetration (11% vs. 16% globally) and the still high share of cash payments (38%) leave significant room for the business to show further rapid growth. In 1H21, the share of internalisation in online acquiring reached 35%, which is an impressive result, in our view. TCS’s FY20 net revenues of RUB4bn account for only 2% of the potential FY23 net acquiring revenues TAM (purchases and transfers), we think.
Monetisation. TCS receives acquiring and service fees. The acquiring fee differs by the size of the merchant. However, it has been relatively stable in the last three years, with the gross acquiring revenue increasing on the rapid expansion in offline and online acquiring TPV. According to TCS, the net revenue margin of 0.64% is 50% above the market average. In 1Q21, the gross margin was at 1.73% and is to stay stable, while unit economics improved in the last six quarters (by 22% to the 1Q20 level).
Regulation. TCS’s management considers the risk of regulatory interference as low, noting that the potential regulation of interchange fees is not going to have much of an impact on margins as the fee is channelled back to consumers via cashbacks. The potential threat from FPS is biggest in the small and micro segments, while larger retailers already enjoy acquiring fees close to those offered by FSP (0.7%).
International expansion. Management has announced that the acquiring business has an international expansion strategy that differs from that at the bank. Currently, the Group is present in Kazakhstan and operates there via local banks. TCS aims to extend its presence in CIS countries by offering payment facilitation and soft solutions.
Guidance. By 2023, TCS expects TPV to grow at a 50% CAGR to more than RUB2tn, with the share of offline payments staying at 30%.
93 RUSSIA Country Report August 2021 www.intellinews.com