Our research and stock selection reflect our longstanding 'follow-the-cashflow' analysis, focused on fundamentally-driven ideas and companies with strong financials. We pursue a two-pillar approach to portfolio construction. Half of our portfolio focuses on stocks that pay high dividends, while the other half focuses on companies that are increasing their dividends. The result is a premium and growing income stream.

Transformational technology

Based in Kazakhstan, Kaspi represents the microeconomic development of 'technology as a platform' and is largely responsible for the country’s digitalisation. The company operates an online payments, marketplace and fintech ecosystem that has changed the way people pay, shop and manage their finances.

Although we invest across the technology hardware sector, we have tended to avoid digital technology businesses, which often rely on their balance sheets to build up their asset base and grow their sales. However, Kaspi has strong pricing power, as illustrated by its elevated market share and high user engagement.

The company’s business model is aligned with the Kazakhstan government’s long-term strategy of encouraging digitalisation, and its growth was also structurally boosted by the impact of the Covid-19 pandemic.

Returning value to shareholders

Kaspi continues to evolve, and has added components to its super app, including travel services and groceries. The company is aligned with all of Kazakhstan’s key merchants, and its scale allows it to offer a wide range of convenient services at reasonable and affordable rates. In turn, this allows Kaspi to generate supernormal returns – and the company’s management is willing to distribute those returns to shareholders.

Positioned for long-term success?

Kaspi remains undervalued, perhaps because of Kazakhstan’s proximity to Russia. However, our political risk assessment suggests Kazakhstan appears to be a major beneficiary of immigration flows from Russia. We estimate that Kaspi’s earnings are likely to achieve a 30% compound annual growth rate over the medium term, as the business continues to expand its services and add more premium features.

We believe there are significant benefits to be gained by engaging proactively with companies and encouraging them to pay a dividend. As well as returning value to shareholders, a dividend discipline helps a company regulate and budget its capital allocation decisions, particularly following a period during which the cost of capital has been exceptionally low. Kaspi has a dividend yield of between 7% and 9% (1), representing an appealing income stream relative to other asset classes.

Final thoughts

Since 2000, dividends in emerging markets (2) have grown twice as fast as those in the rest of the world. Underpinned by strong corporate fundamentals and an expanding investment universe, we believe emerging markets offer a compelling long-term investment opportunity for clients seeking to generate both income and growth.

Companies are selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance. Past performance is not a guide to future results.