Sova Capital on May 5 has affirmed its Buy rating on the shares of Russian internet major Yandex, while keeping the target prices unchanged at $82.5/share (NASDAQ) and RUB5,700/share (Moscow Exchange), implying upside of 19-28% to the current share prices.

As reported by bne IntelliNews, in 2021 Yandex for the fifth year in a row topped the list of most valuable tech and internet companies with a valuation of $23bn. Its investment case now rests on developments in transportation, e-commerce and foodtech, with the developed ecosystem seen as a key advantage.

In the latest rating update, Sova analysts believe that Yandex continues to offer attractive exposure to Russia’s macroeconomic recovery, especially in 2Q21, with its core Search and Portal (S&P) and ride-hailing segments likely to substantially accelerate on the back of easier comps. 

"There also remain attractive optionality and catalysts, including positive surprises in new areas such as 3P logistics and driverless cars, as well as in FinTech," Sova suggests.

The analysts estimate that Yandex trades at 2022-2023 Enterprise Value/EBITDAs of 22.1-15.2x and Price/Earnings of 43.0x-28.6x, implying respective discounts of 9-23% and 12% to the average for its global peers. 

"We note that quite a lot of the positives are priced in, making the stock price vulnerable to any misses or negative headlines," the analysts warn, and argue that "the market has been rewarding the stock for its increased exposure to e-commerce, while largely ignoring its weakening ROE (return on equity)". 

Possible catalysts for the name include the 2Q21 IFRS results (due at the end of July), positive surprises in new areas such as 3P logistics and driverless cars, as well as in FinTech, where Yandex is making progress, as well as a longer-term possibility of inclusion in the NASDAQ-100 index, which could provide a powerful trigger.

Sova warns of risks such as regulatory pressures and the associated headline risks (e.g. the regulatory pressure and a taxi draft law),  management execution in increasingly complex and multi-segment business, any further pullback in global peer multiples, rising competition across key segments, and the expiration of CEO, founder and shareholder Arkady Volozh’s selling lockup in 4Q21.

Yandex reported a 56% year-on-year increase in US GAAP revenues to RUB73bn ($1bn) in 1Q21, beating consensus expectations by 4-5%, out of which ad revenues rose by 20% y/y to RUB36bn.

Notably, the taxi segment revenues were up by 89% y/y at RUB27bn, while the gross merchandise volume (GMV) of ride-hailing (excluding logistics) increased 44% y/y and GMV of Yandex.Eats was up 147% y/y. In 4Q21 the Yandex.Taxi Segment remained profitable and returned an adjusted EBITDA margin of 14%.

Yandex.Market e-commerce marketplace made RUB7.3bn in revenues (not consolidated in 1Q20 numbers). Total e-commerce GMV (Yandex.Market, Yandex.Lavka e-grocery, grocery deliveries from retail chains) was up 186% y/y to RUB24.7bn.