Sberbank CIB analysts still see a "decent upside" in the shares of Russian banking group TCS, even though they have tripled in value in the last two years.

TCS, which operates the country's only purely online bank Tinkoff, has become an investor’s darling, as it is seen as both a tech play and a banking play. Russia’s stock market is up by about 20% YTD, making it one of the best performing markets in the world. Within that growth banking stocks have significantly outperformed and are up by around 50% YTD, as investors are buying bank stocks as a proxy to get exposure to the post-coronavirus (COVID-19) pandemic recovery.

TCS’ shares are trading at three times the level of the $27.64 per share valuation it was given during a failed deal to tie up with internet major Yandex in October, which is looking for a fintech solution to complement its e-commerce business.

The stock has been on a rollercoaster ride since it IPO’d in October 2013, listing its shares at the high end of the offer range at $18, only to see them fall to $1 the next year as Russia annexed the Crimea. The shares recovered to the IPO level in 2018 as Russia came out of the post-2014 recession but they have soared in the last two years as geopolitical tensions have eased and the economy begins to grow strongly.

To remind, in 2020 Yandex called off the $5.5bn deal to acquire Tinkoff Bank controlled by TCS. Although the market and the analysts were inspired by a possible deal, TCS was still seen as having strong standalone potential of building up the business further, and reported record-high profit and 40% ROE for 2020.

Most recently TCS revealed its 2023 strategy, a focus on further customer growth cross-sell, and a deep dive into technology, targeting $1bn profit and 30% ROE by 2023, which was welcomed by both institutional and retail investors.

Sberbank CIB believes that TCS 2022-2023 earnings forecasts "look fairly robust" and believes that that TCS can sustain the current valuation multiples given the consistent earnings momentum (26% and 23% earnings per share for 2022 and 2023 expected respectively). 

TCS is also expected to be supported by investments and SMEs. "TCS has developed a great product in both lines, and, second, there remain huge potential organic growth and market share gains up for grabs over the next few years," Andrew Keeley of Sberbank CIB argues.

As followed by bne IntelliNews, TCS is targeting a strong trend of retail investors flocking to the equity market in Russia.

Sberbank CIB raises the revenue expectation for both segments: 44% growth sees for 2021-2023 for SME (versus above 30% guidance) and RUB50bn investments revenues in 2023 (versus above RUB40bn guidance). 

In addition, TCS is seen as being on track in acquiring over 18mn active customers by end-2023 (up from 10mn as of 1Q21), and boost the cross-selling within the ecosystem that has only just started with only 1.5 products per active customer. 

TCS posted RUB14.2bn ($0.19bn) profit in 1Q21 under IFRS, up by 57% year on year and 15% quarter on quarter and making a 43.8% return on equity (ROE).