Freedom Holding (NASDAQ: FRHC) is an American brokerage company originally from Kazakhstan. Her business is strong and marginal. But there are political risks.
What do they earn
Generally, this is the same "Freedom Finance", which you all heard about: company from Kazakhstan, registered in the USA. It provides brokerage and financial services in the countries of the former USSR.
According to the company's annual report, its revenue is divided into the following segments:
- Fees and Commissions — 77%. Brokerage commissions, company's income from retail banking, underwriting and market making.
- Income from trading in securities — 13%. The results of the company's work in the financial markets.
- Interest income — 9%. Well, everything is clear here.
- The company's income from operations in the foreign exchange markets — 1%.
There is no data on the regional breakdown of revenue, but the company probably makes most of the money in the Russian Federation as the largest of its markets.
Arguments in favor of the company
Investment for the Poor. Freedom's main prerequisites for growth are the same, as at TCS Group: the interest of the population of the Russian Federation in the securities market is constantly growing. At the same time, the average Russian investor is very risk averse, considering, What's on stock market the mass investor came just recently. So, in the natural course of events, everything will be fine with the Freedom brokerage business.
The size. Freedom is not the smallest, but not the largest broker in the Russian Federation. At the same time, the company is inexpensive - P / E less 12, P / S about 6,24 and her business is high-margin, the average annual final margin is approximately 30% from proceeds.
The capitalization of Freedom is also small - 4.17 billion dollars. In fact, it costs like some unprofitable startup like Squarespace - only at the same time it is a successful business..
In sum, this can attract a lot of investors into the company's shares.. It is also very likely that the company will be bought by someone larger..
What can get in the way
"Visiting the Emir of Bukhara". In the film "Comrade X" the USSR was called a country, where "anything can happen - and it usually does". On the Russian Federation, as the successor of the USSR, it is fully extended. This means, that anything can happen to Freedom - from a raider takeover of a business to other unpleasant events. It needs to be understood and accepted., not to be surprised later. Something like this can happen and is already happening in most jurisdictions., where the company operates: Kazakhstan, Ukraine and other countries of the former Soviet Union. But the most vulnerable company is in Russia, where is her main business.
You can already prepare for problems in the company's reporting, associated with instability in Kazakhstan: in this country, Freedom has the most branches after Russia - 44 in Russia and 26 In Kazakhstan. However, riots in Kazakhstan have been going on for more than a day, and this does not affect Freedom shares.
Maybe, this is related to, that the average Western investor is like a retail, and institutional - categorically short-sighted in everything, that goes beyond the English-speaking world. So one can humbly hope, that Freedom quotes will not suffer at least until the release of the report for this quarter - simply because, that Western investors do not quite understand, that Freedom has a significant part of its business in Kazakhstan.
Bad stories are also possible., associated with big politics, which Freedom cannot influence at all. For example, Americans will put pressure on the company against the backdrop of events in Ukraine, Kazakhstan or just as part of a witch hunt. She may well be delisted for far-fetched reasons.
It is also possible a whole campaign of persecution of the shares of Freedom and other Russian issuers by large American investors, even without sanctions.
Dividends. Despite, that the company's business is very marginal, it does not pay dividends. This is problem, because in the global stock market there has just been a tendency to increase dividends by various companies.
For foreign investors, the specifics of the development and prospects of the stock market in the post-Soviet space is a question, requiring time and perseverance. For them, Freedom is just an exotic company from a distant wild country.. If she paid dividends, then its shares would be of greater interest to foreign investors, than now.
Given the political risks, the “low cost” of Freedom mentioned above is very relative - by American standards, the company is inexpensive, Well, it's not an American company.. Generous payouts could attract a lot of passive income enthusiasts among Americans to these stocks..
We live in a world of shadows. The company's profitability surge this year was largely driven by its stock trading performance.. Luck plays a big role here., so this success may not be repeated - and even turn into losses, if things don't go well on the stock exchange.
Resume
Freedom Holding is a very interesting option for, to capitalize on the growth of consumer interest in the stock market in the countries of the former USSR. But you still need to keep the political risks in mind..
