The bank’s analysts noted that the decline in the availability of financial resources indicates a slowdown in the growth rate of Russian Internet companies’ revenues in the near future. Papers of VK and Yandex are highlighted among favorite stocks
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Analysts at Gazprombank predicted a slowdown in the pace of development of the Russian technology sector in the second quarter of 2023. This is stated in the document “Technologies. On the Threshold of a Great Slowdown” (available to RBC Investments).
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“In our opinion, the growth slowdown in the Russian technology segment has so far been partially masked by the positive effect of the redistribution of market shares in favor of Russian market leaders. The slowdown will become noticeable starting from the second quarter of 2023,” the report says.
The departure of international companies from the Russian market only delayed the expected slowdown, but did not cancel it, analysts say. The dynamics of macroeconomic indicators and “a decrease in the availability of financial resources indicate a slowdown in the growth rate of Russian Internet companies’ revenues in the near future,” Gazprombank explained.
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According to the bank’s analysts, the average dynamics of technology companies’ revenue growth rates in 2022-2025 will be 23%. This is significantly higher than the growth rate of the economy, but at the same time much lower than in 2019-2022, when the company’s revenue grew by 38% per year.
In the long term, the technological factor can also become the main barrier to growth, since in the current logistics conditions there are no opportunities to increase purchases of high-tech equipment that may be needed to scale the business, experts say.
Which stocks will be the beneficiaries of growth and which stocks are considered risky
Analysts at Gazprombank believe that the main long-term beneficiaries of the current market situation may be industry leaders with significant opportunities to generate free cash flow. Among such favorites, experts single out the papers of Yandex and VK. Depository receipts of VK and CIAN are also considered attractive by experts in terms of the balance of expected growth, current value and corporate risks.
Ozon has experienced strong business growth in recent years, making online retail securities “most sensitive to slower growth” according to analysts. As for HeadHunter’s business, experts do not expect serious growth rates of financial indicators: they predict the dynamics to be lower than the average for the sector. At the same time, foreign registration limits the possibility of paying shareholders, so at the moment the company’s depositary receipts do not look attractive, analysts say.
VK – rating “buy”
Target price: ₽600 per depository receipt
“In our opinion, VK has already gone through the main part of the transformation in 2022 by changing the ownership structure, management and set of assets. As a result, VK now looks like a cleaner growth story with a simpler business structure and increased management interest in growing the company’s capitalization,” Gazprombank analysts said.
VKCO – Opening Broker [20.12.2023] [0.66]
They also added that with the departure of Meta services from the Russian market (recognized as extremist in the Russian Federation and banned) and the acquisition of Yandex.News and Zen services, VK has strengthened its leading position in the online market. The company will be able to use profits from this segment to develop promising areas, they say.
Also, according to them, the average annual growth rate of the company’s revenue in 2023-2028 will be equal to 20%, which is comparable to the industry average.
CIAN – Buy rating Target price: ₽500 per depository receipt
“The Russian real estate market looks structurally attractive due to the low housing supply, which implies long-term growth potential. In our opinion, CIAN will be able to overcome the cooling period of the real estate market due to the strong positions of the secondary segment,” the document says.
CIAN – Renaissance Capital [19.01.2024] [0.73]
Experts also believe that the company will reach a positive free cash flow (FCF), and the average annual growth rate in 2023-2028 will be 47%, which creates the basis for paying dividends. The experts added that in the current environment, the company’s focus “is more aimed at strengthening its position in key business segments than at developing new areas.”
Yandex — hold rating Target price: ₽2,300 per depository receipt
“In our opinion, Yandex is the main beneficiary of the current market configuration, however, in the short term, the risks associated with the reorganization may lead to increased speculation and increased volatility,” the experts write. Analysts believe that the search service has become the main beneficiary of the structural changes in the Russian technology market once morest the backdrop of the departure of major competitors from Yandex’s key markets for search and taxi aggregators.
YNDX – Renaissance Capital [16.02.2024] [0.93]
In the long term, Yandex looks like one of the most fundamentally attractive companies in the Russian technology sector for investors, they say. However, experts point out that the risk is the uncertainty associated with the reorganization process: it increases the likelihood of speculation and volatility of securities.
Ozon – Hold rating Target price: ₽1,700 per depositary receipt
“In our opinion, last year the phase of active market growth ended and the stage of consolidation and efficiency began. We believe that the company has two to three years of increased growth potential in reserve, but it is in a rather vulnerable position due to a noticeably weaker cash flow profile compared to competitors,” analysts said.
OZON — Renaissance Capital [19.01.2024] [0.66]
Experts assumed that Ozon will be able to maintain growth rates well above the market average in 2023-2024 once morest the backdrop of additional lines of business, such as and fintech. However, starting in 2025, they expect growth rates to slow down “to around market levels.”
HeadHunter – rating “sell” Target price: ₽1200 per depository receipt
“We believe that in 2023 the labor market will move into a phase of retaining employees following the events of last year associated with a change in the structure of the market. Thus, the growth of HeadHunter’s financial indicators will be at a level below the average for the sector. At the same time, we note the likelihood of HeadHunter’s participation in the consolidation of the online classifieds sector, if any, which might become a supporting factor for quotes,” the document says.
HHRU – Renaissance Capital [19.01.2024] [0.41]
Last year, the labor market experienced significant turbulence due to the exit of a significant number of international companies from the Russian market and the replacement of some of them by local players, experts say. Therefore, in their opinion, in the coming years, “the focus will shift from recruiting to retaining it, which will reduce the demand for recruitment services.” Experts believe that in the long term, “asset consolidation” in the online classifieds segment is possible.
Dmitry Ilyin.
