Anyone who has read about and watched Kaspi CEO Mikheil Lomtadze in interviews and talks would probably agree that this man is what Charlie Munger would call an "intelligent fanatic". His exemplary character, high intelligence and strong executional ability ( "Doer! Doer! Doer!", as mentioned by his HBS admission reference) makes him one of the rare breed. I have invested in Kaspi because of its enviable track record and more so because this genius is Kaspi's CEO.
When something appears too good to be true, questions need to be asked. I agree it is interesting, but it has hair on it. There is the Russia issue and there is also the question about whether it will be able to replicate its success in Turkey. There are lots of short sellers in this stock also - whether you agree with them or not, it is always wise to understand their viewpoint.
James, I have just read your linked substack article on Kaspi - it is an excellent write-up, thank you.
From all that I have read and video-watched on Kaspi CEO Mikheil Lomtadze, this man is clearly an exceptional talent which explains Kaspi's outstanding business performance. And who on this planet would willingly shut down a very profitable and significant (if I recall correctly, he mentioned it being about 30% of total revenue in one of his interviews) credit card business within 48 hours after it receiving a negative Net Promoter Score? He did so because he did not want to make what he called "bad money" - that speaks for his character.
Lomtadze is an unique gem and I want to partner with such rarity - Kaspi is my second largest stock position, 28% of portfolio.
By the way, 2 days ago, I watched your interesting interview with MOI Global - there you mentioned the utmost importance of management, wouldn't Kaspi best epitomizes that? Yesterday I ordered your book, The Fabric Of Success, from Amazon (another of my holding). Looking forward to devouring it.
Robert, management is the most important factor. I like Lomtadze. He is the kind of person I look for when investing.
But there is something about Kaspi that makes me uneasy. I can't put my finger on it, but I live by the motto, "if in doubt, stay out". That explains why I haven't invested.
I am a long term buy and hold investor. In my mind I like to be comfortable about the continuity of the company 10 or 20 years from now. You mention Amazon - with great leadership - I have no doubt it will still be a power house decades from now - I too am an investor in Amazon.
But Kaspi, I can't be so sure. There are both macro and micro uncertainties.
Russia invaded Ukraine because of its vast resources. Khazakstan has abundant valuable natural resources, and a much smaller population. It would be far easier to conquer and the rewards would be huge. How do we know it won't be next for Putin?
The push into Turkey is a gamble - I don't think it will be easy to replicate the model there. Why did Lomtadze feel it necessary to expand into an alien jurisdiction? Probably because he has exhausted growth in Khazakstan. Too many questions spinning around in my mind.
I just can't get comfortable with it.
There are two types of mistakes in investing. The first one is not buying something that goes higher - an opportunity cost, but no erosion of capital. The second is buying something that goes down - a capital hit. I would rather make the first mistake than the second. So if in doubt, I stay out.
Thank you, James, for your response. I respect your reservation about Kaspi and the geopolitical potential issue regarding Russia. Am also of the view that Kaspi's expansion into Turkey would probably be a drag, at least in the short term. These are risks I am willing to absorb when I invested in Kaspi.
Thanks too for mentioning the Talking Billions podcast. Bogumil Baranowski conducts insightful interviews especially the one I last watched on Chris Mayer. Will watch yours on his podcast in due course - am sure will find it enlightening.
I briefly went through it and looked at what others had to say about it as well, it overall I think is quite inconsequential both to the actual business of Kaspi and how the market has and will view it. It mainly talked about kaspi still being used by a small amount of Russian citizens, and there were numerous holes in the report, but I can easily see that being true. I also do think Kaspi is bound to get some short reports and interest every now and again and would expect that as part of the ride because even if the claims aren't very accurate, due to the country, the stock will still feel any accusation
Yeah, they are based in a region which is easy to pound on. I have owned Kaspi for a while and the feeling is that the company is in a consolidation fase. They were about to expand into Ukraine befor the outbreak of the war. That would have been super interesting. Think they Will go there as soon as the war ends.
That is also a trigger, the end of the war an the rebuild in the region. So lets hope that it will end soon an that Investors can focus on the business helats instead.
Thank you so much for your support and time!! I could very well be showing my ignorance here but I don't think much about domestic competition to Kaspi's businesses, I would worry more about focused efforts from foreign competitors, or also an extreme macro situation with inflation or the like.
Thank you also for your reply. For me, foreign competition isn't a concern, rightly or wrongly. I currently work in Kazakhstan and use Kaspi's app extensively as do most people. It's kind of ingrained, think markets, taxis, paying for lunch, etc. Everyone uses Kaspi.
There is more competition in the online marketplace arena. As well as Kaspi, Halyk have an offering, plus dedicated outlets such as Wild Berries, Ozon, etc.
But Kaspi has a good foothold. You can access your government records via the app, transfer car ownership, etc.
I meant to add a little on the macro front too... indeed, inflation is high in Kazakhstan, you can earn 17% or 18% on deposit accounts here, including Kaspi.
There is also currency risk. Kaspi reports in KZ Tenge. Take a look at the KZT vs USD chart. Even the current dollar weakness hasn't benefitted the Tenge much.
So, yes there are clear risks here, but I feel the rewards warrant them.
Your point about valuation is key: while many U.S. large caps trade on lofty multiples pricing in near-perfection, Kaspi looks deeply undervalued with a PEG around 0.5. That kind of asymmetry is rare today and definitely worth digging into.
PetroKazakhstan was listed as PKZ ~20ish years ago, a Canadian oil & gas co. operating in Kazakhstan, punctuated with a shareholder class action settlement. Interesting story there.
Thank you so much for the compliment and your time! Let me respond a bit about the FCF. So kaspi does have consistently positive FCF, and very good FCF margins, however what you might be talking about or noticing is that it does vary significantly from profit margins, the reason why is because kaspi is a large bank and has lot of deposits and loans and complicated transactions that also cause large US banks to have cash flows not representative of earnings. But since banking is only a 1/3rd of the business overall Kapsi does have solid net income to FCF conversion, but it will fluctuate in the short term to some degree due to the banking. For example the past two years, FCF was about half of net income, however, in the two years prior to that FCF was substantially higher than net income, so it will fluctuate
There is a real risk from the region! For sure, and plenty great/good ideas don't work out the way we thought at first, but given the current facts and history, I feel it's all in all favorable. I really appreciate your time and compliment
Anyone who has read about and watched Kaspi CEO Mikheil Lomtadze in interviews and talks would probably agree that this man is what Charlie Munger would call an "intelligent fanatic". His exemplary character, high intelligence and strong executional ability ( "Doer! Doer! Doer!", as mentioned by his HBS admission reference) makes him one of the rare breed. I have invested in Kaspi because of its enviable track record and more so because this genius is Kaspi's CEO.
Thank you for reading robert, and teaching me a few things about the business, I'm happy to be a long term shareholder alongside you
When something appears too good to be true, questions need to be asked. I agree it is interesting, but it has hair on it. There is the Russia issue and there is also the question about whether it will be able to replicate its success in Turkey. There are lots of short sellers in this stock also - whether you agree with them or not, it is always wise to understand their viewpoint.
If you want a deep dive that touches on these points and more, I recommend: https://rockandturner.substack.com/p/kaspi-fin-tech-super-app-business
James, I have just read your linked substack article on Kaspi - it is an excellent write-up, thank you.
From all that I have read and video-watched on Kaspi CEO Mikheil Lomtadze, this man is clearly an exceptional talent which explains Kaspi's outstanding business performance. And who on this planet would willingly shut down a very profitable and significant (if I recall correctly, he mentioned it being about 30% of total revenue in one of his interviews) credit card business within 48 hours after it receiving a negative Net Promoter Score? He did so because he did not want to make what he called "bad money" - that speaks for his character.
Lomtadze is an unique gem and I want to partner with such rarity - Kaspi is my second largest stock position, 28% of portfolio.
By the way, 2 days ago, I watched your interesting interview with MOI Global - there you mentioned the utmost importance of management, wouldn't Kaspi best epitomizes that? Yesterday I ordered your book, The Fabric Of Success, from Amazon (another of my holding). Looking forward to devouring it.
Robert, management is the most important factor. I like Lomtadze. He is the kind of person I look for when investing.
But there is something about Kaspi that makes me uneasy. I can't put my finger on it, but I live by the motto, "if in doubt, stay out". That explains why I haven't invested.
I am a long term buy and hold investor. In my mind I like to be comfortable about the continuity of the company 10 or 20 years from now. You mention Amazon - with great leadership - I have no doubt it will still be a power house decades from now - I too am an investor in Amazon.
But Kaspi, I can't be so sure. There are both macro and micro uncertainties.
Russia invaded Ukraine because of its vast resources. Khazakstan has abundant valuable natural resources, and a much smaller population. It would be far easier to conquer and the rewards would be huge. How do we know it won't be next for Putin?
The push into Turkey is a gamble - I don't think it will be easy to replicate the model there. Why did Lomtadze feel it necessary to expand into an alien jurisdiction? Probably because he has exhausted growth in Khazakstan. Too many questions spinning around in my mind.
I just can't get comfortable with it.
There are two types of mistakes in investing. The first one is not buying something that goes higher - an opportunity cost, but no erosion of capital. The second is buying something that goes down - a capital hit. I would rather make the first mistake than the second. So if in doubt, I stay out.
If you enjoyed the podcast with MOI Global, you may enjoy my appearance on the Talking Billions podcast from last week: https://rockandturner.substack.com/p/james-emanuel-talking-billions
Thank you for ordering the book. I'm sure you'll enjoy it, but I would love to hear your feedback once you've had the chance to read it.
Thank you, James, for your response. I respect your reservation about Kaspi and the geopolitical potential issue regarding Russia. Am also of the view that Kaspi's expansion into Turkey would probably be a drag, at least in the short term. These are risks I am willing to absorb when I invested in Kaspi.
Thanks too for mentioning the Talking Billions podcast. Bogumil Baranowski conducts insightful interviews especially the one I last watched on Chris Mayer. Will watch yours on his podcast in due course - am sure will find it enlightening.
There was a short report a while back by Culper Research I think. What are your thoughts on that and anything worth highligting
I briefly went through it and looked at what others had to say about it as well, it overall I think is quite inconsequential both to the actual business of Kaspi and how the market has and will view it. It mainly talked about kaspi still being used by a small amount of Russian citizens, and there were numerous holes in the report, but I can easily see that being true. I also do think Kaspi is bound to get some short reports and interest every now and again and would expect that as part of the ride because even if the claims aren't very accurate, due to the country, the stock will still feel any accusation
Yeah, they are based in a region which is easy to pound on. I have owned Kaspi for a while and the feeling is that the company is in a consolidation fase. They were about to expand into Ukraine befor the outbreak of the war. That would have been super interesting. Think they Will go there as soon as the war ends.
That is also a trigger, the end of the war an the rebuild in the region. So lets hope that it will end soon an that Investors can focus on the business helats instead.
Great article! :) Really enjoyed the deep dive. The valuation is definitely compelling, feels like the downside is covered at these levels.
Quick question: who do you see as Kaspi’s main competitors?
Thank you so much for your support and time!! I could very well be showing my ignorance here but I don't think much about domestic competition to Kaspi's businesses, I would worry more about focused efforts from foreign competitors, or also an extreme macro situation with inflation or the like.
Hello Peter,
Thank you also for your reply. For me, foreign competition isn't a concern, rightly or wrongly. I currently work in Kazakhstan and use Kaspi's app extensively as do most people. It's kind of ingrained, think markets, taxis, paying for lunch, etc. Everyone uses Kaspi.
There is more competition in the online marketplace arena. As well as Kaspi, Halyk have an offering, plus dedicated outlets such as Wild Berries, Ozon, etc.
But Kaspi has a good foothold. You can access your government records via the app, transfer car ownership, etc.
Regards,
Jon
I meant to add a little on the macro front too... indeed, inflation is high in Kazakhstan, you can earn 17% or 18% on deposit accounts here, including Kaspi.
There is also currency risk. Kaspi reports in KZ Tenge. Take a look at the KZT vs USD chart. Even the current dollar weakness hasn't benefitted the Tenge much.
So, yes there are clear risks here, but I feel the rewards warrant them.
Jon
Probably London listed Halyk Bank. They have a similar offering and although bigger, are playing catch up after Kaspi lead the way.
There are other banks in KZ, some of the smaller ones even offer the ability to use Kaspi services via their own apps!
Never even heard of Kaspi until I read this article. Looks like a solid company, thanks for the tip and definitely will look into it!
Thank you Michael I truly appreciate for your consistent support and time, I think there are some other very solid articles on the business as well!
Thank you Peter for this great a analysis! Best wishes from spain!
Your point about valuation is key: while many U.S. large caps trade on lofty multiples pricing in near-perfection, Kaspi looks deeply undervalued with a PEG around 0.5. That kind of asymmetry is rare today and definitely worth digging into.
Thank you so much for your time and response Alexander!
PetroKazakhstan was listed as PKZ ~20ish years ago, a Canadian oil & gas co. operating in Kazakhstan, punctuated with a shareholder class action settlement. Interesting story there.
I have to admit you have taught me something new!
I am cautious on this due to consistent negative free cashflow. Good write up!
Thank you so much for the compliment and your time! Let me respond a bit about the FCF. So kaspi does have consistently positive FCF, and very good FCF margins, however what you might be talking about or noticing is that it does vary significantly from profit margins, the reason why is because kaspi is a large bank and has lot of deposits and loans and complicated transactions that also cause large US banks to have cash flows not representative of earnings. But since banking is only a 1/3rd of the business overall Kapsi does have solid net income to FCF conversion, but it will fluctuate in the short term to some degree due to the banking. For example the past two years, FCF was about half of net income, however, in the two years prior to that FCF was substantially higher than net income, so it will fluctuate
Their fcf is consistently positive
Great article, KSPI is interesting company with strong fundamentals and strong competitive advantages. 👍
Thank you Sergey! I really appreciate your time and response!
Good article. Most would be put off by the countries they serve but you made it feel like it's doable.
There is a real risk from the region! For sure, and plenty great/good ideas don't work out the way we thought at first, but given the current facts and history, I feel it's all in all favorable. I really appreciate your time and compliment