Tinkov’s Facebook Ire Disregarded in 62% Post-IPO Plunge

Apr 04, 2014 2:26 pm ET

April 4 (Bloomberg) -- Two months after TCS Group Holding Plc founder Oleg Tinkov called investors “irrational” for punishing his stock, the rout is deepening.

TCS, which controls Russia’s third-largest credit-card issuer, sank 18 percent in London yesterday after the bank’s executives signaled in a Moscow meeting that Russia’s slowing economy is causing more loans to sour. The plunge left the stock down 43 percent since Tinkov turned to Facebook Inc. on Jan. 28 to lament the “stupidity” he’s seen from investors since the bank’s initial public offering in October. The stock is down 62 percent from its IPO price through yesterday’s close.

TCS executives said told analyst at the meeting that the company may struggle to meet its bad debt provision target as delinquencies mount. The cost of risk could surpass the upper range of its 17 percent mark in the first quarter the company said in an e-mailed statement today, citing a challenging economic environment.

“One investor can be stupid, but the market is always right,” Ilya Kravets, the New York-based director of investment research at Daniloff Capital LLC, said by phone yesterday. “TCS is all about high-risk consumer credit and that part of the banking industry gets hit the most when economic growth slows.”

The stock fell 1.5 percent to $6.50 in London today. The Bloomberg Russia-US Equity Index of the most-traded Russian companies in the U.S. added 0.4 percent to 85.18 at 2:25 p.m. in New York.

The Market Vectors Russia ETF, the biggest U.S. exchange- traded fund that holds Russian shares, fell 1.5 percent to $23.64. The RTS Volatility Index, which measures expected swings in the index futures, sank 5.4 percent to 31.32.

Net Income

The lender, founded as Tinkoff Credit Systems in 2007 and part-owned by Goldman Sachs Group Inc., has issued more than 4 million cards in Russia, according to the company. The bank is modeled on Capital One Financial Corp., which pioneered the distribution of credit cards through direct mail.

TCS’s adjusted net income will rise 16 percent to $210 million in 2014, according to the mean of nine analyst estimates compiled by Bloomberg.

“TCS is working on lowering costs, via negotiation with suppliers and lower hiring,” Dmitry Trembovolsky and Alexey Zarochentsev, Moscow-based analysts at Goldman Sachs, said in a report yesterday. “Overall, management believes it will be well positioned to return to growth when the market improves, but the timing of this turn is unclear.”

Goldman reiterated its buy recommendation on the stock and a target price at $12 per share, according to the report.

Delinquencies Rates

“TCS Bank will priorities risk management to preserve the quality of the portfolio and work to avoid further deterioration in cost of risk,” TCS said.

Russia’s $2 trillion economy will probably expand less than 1 percent this year, down from 1.3 percent in 2013, central bank Chairman Elvira Nabiullina said April 2. Inflation is at a “high” risk of exceeding the bank’s 5 percent goal, she said.

TCS Chief Executive Officer Oliver Hughes “flagged cost of risk rising above the annual targets, making meeting them contingent on improvements in the second half of 2014,” Alex Kantarovich, the head of Russian equity research at JPMorgan Chase & Co. in Moscow, wrote in a note to investors. “We see risks to the 2014 earnings targets.” JPMorgan cut the stock to neutral today, citing a cut in its earnings per share forecast.

VTB Group, Russia’s second-biggest lender, cut its 12-month target price on TCS by 30 percent to $9 following the meeting, analyst Jason Hurwitz said in a report yesterday.

--With assistance from Ksenia Galouchko in Moscow.