Freedom Holding: Strategic Shift Into Telecom And Streaming Adds A Great Value
Boris Dubov | Apr 09, 2024 08:08AM ET
Last year, Freedom Holding Corp. (NASDAQ: FRHC) According to Investing.com , FRHC shares trade at a trailing twelve-month price/earnings ratio of just 12.55x, which seems very high compared to the industry:
But it seems to me that this ratio looks more than attractive in absolute terms. Especially when we consider that the company earns much more on the capital invested than its industry peers. For example, FRHC's return on equity (ROE) is more than 10 times the industry's average. Moreover, the company's growth rates are many times higher than all industry norms:
Considering the strategic moves the company has made recently, I think a TTM P/E of 12.55 is very low, because when ecosystems like FRHC's expand, the market usually pays higher premiums for sustainable growth and margins.
Risks and Critical Perspectives
Freedom Holding Corp. faces significant risks in its expansion into the telecommunications and streaming sector - we shouldn't lie to ourselves that it doesn't.
One major concern I have is the hefty CAPEX required to develop the infrastructure while building robust broadband networks and implementing 5G technology. It comes at a significant cost as one might guess, which could put a strain on FRHC's financials and affect the company's currently healthy profitability.
Also important to note is that entering the streaming industry presents unique challenges, particularly in licensing and content production. FRHC will have to secure the rights to a variety of compelling and exclusive content, which can be costly. Think of Netflix (NASDAQ:NFLX) and its long path to profitability. These hurdles highlight the need for effective risk management strategies to mitigate potential financial setbacks and ensure the sustainability of FRHC's expansion efforts.
Some might fear that FRHC's expansion into telecom and streaming could distract from its core business of financial services and thus weaken its competitive position. Finding the right balance between expansion initiatives and maintaining market strength will be critical to FRHC's long-term success. Furthermore, managing the unpredictable regulatory environment and consumer acceptance in frontier markets such as Kazakhstan is another complex factor.
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Conclusion
In conclusion, I would say that Freedom Holding's strategic expansion into the telecommunications sector, marked by the creation of Freedom Telecom and plans for a localized streaming service, holds significant potential for further diversification of the business. Despite the challenges inherent in deploying 5G technology and complicated content licensing, I believe FRHC, with its updated ecosystem, is well positioned for future growth given the current state of the telecom market in the region. The company's robust financial performance and stable market presence, reflected in its impressive Q3 2024 results, underline its resilience, which should not only support a massive CAPEX going forward but also provide greater clarity on where the next growth impetus should come from. The strategic initiatives position the company as a prominent player in Kazakhstan's evolving digital landscape with significant potential for long-term value creation.
Surely, the venture into telecom and streaming is not without risks. The significant capital expenditure required for infrastructure development and the uncertainties of content production and licensing present financial challenges that need to be carefully managed. However, I think that this downside risk is already embedded in the current valuation of the company, which seems undervalued to me and quite attractive at today's stock price level.
Based on the above, I believe that FRHC will be an interesting investment idea in emerging markets over the next few years.
/h5
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