Low P/E ratio may not be a bargain if (1) earnings are expected to decline; (2) interest rates are high; (3) financial leverage is high or (4) there are serious doubts over earnings quality
Interesting! Im based in the ivory Coast which is in a monetary union with 7 other countries and has a currency pegged to the EUR. It's been pegged to the EUR/French Franc since the early 1900s. Inflation is low in the Ivory Coast, in line or lower than eruzone inflation.
Interest rates on Ivory Coast bonds are high though, but that's because of the sovereign credit risk of the ivory Coast, not because of an expectation that the currency will devalue. In this case I think a low P/E really is a low P/E even if rates are high.
Like Heineken's subsidiary in the Ivory Coast - Brassivoire - will do just fine and keep selling beers even if the Ivory Coast restructures their debt. So unlike Kaspi, in this case you can't take the implied earnings yield from Brassivoire's P/E and compare it to Ivory Coast's high government bond yield. A better comparison is maybe Germany's bond yield plus tail risk of the peg breaking.
Brassivoire is actually a private company, but there is another big brewery Solibra - founded in 1955 - that is listed, but they trade at P/E 28 on full year 2024 earnings...
I just can't find a single invest-worthy stock in my on home market where I should have an edge. Finding tons in Malaysia on the other hand!
Kaspi has long-term earnings growth potential, which the bond does not offer. It is a fixed payout. So you are already "paid" more than the bond, and have upside potential, if you believe that earnings can outperform inflation over the long run.
It is my opinion that using “consensus” estimates is a sure way to get average or below average returns. I am optimistic, over the long-term, that Kaspi’s growth can outpace inflation, in both Kazakhstan (maturing) and Turkey (large TAM available). I expect income growth to lag revenue growth this year for a variety of reasons. I think the focus on short term estimates misses the forest for the trees.
Interesting! Im based in the ivory Coast which is in a monetary union with 7 other countries and has a currency pegged to the EUR. It's been pegged to the EUR/French Franc since the early 1900s. Inflation is low in the Ivory Coast, in line or lower than eruzone inflation.
Interest rates on Ivory Coast bonds are high though, but that's because of the sovereign credit risk of the ivory Coast, not because of an expectation that the currency will devalue. In this case I think a low P/E really is a low P/E even if rates are high.
Like Heineken's subsidiary in the Ivory Coast - Brassivoire - will do just fine and keep selling beers even if the Ivory Coast restructures their debt. So unlike Kaspi, in this case you can't take the implied earnings yield from Brassivoire's P/E and compare it to Ivory Coast's high government bond yield. A better comparison is maybe Germany's bond yield plus tail risk of the peg breaking.
Thanks for your insight!
It's wonderful to meet people from around the world here on Substack.
I've never looked at Brassivoire before.
In the unlikely event that the Ivory Coast needs to restructure their debt, there could be operational risks (e.g. political unrests).
So I may want to overlay some country risk premium too.
Brassivoire is actually a private company, but there is another big brewery Solibra - founded in 1955 - that is listed, but they trade at P/E 28 on full year 2024 earnings...
I just can't find a single invest-worthy stock in my on home market where I should have an edge. Finding tons in Malaysia on the other hand!
Looking forward to your posts on more Malaysian stocks!
Kaspi has long-term earnings growth potential, which the bond does not offer. It is a fixed payout. So you are already "paid" more than the bond, and have upside potential, if you believe that earnings can outperform inflation over the long run.
A lot of growth will be required to justify KSPI’s high valuation.
Inflation is ~12% in Kazakhstan. In 2025, KSPI’s EBIT grew only +4%. Consensus estimates +8% and +15% in the next two years respectively.
I don’t find the available evidence compelling enough to indicate strong growth. If there is strong data otherwise, I am ready to change my mind.
It is my opinion that using “consensus” estimates is a sure way to get average or below average returns. I am optimistic, over the long-term, that Kaspi’s growth can outpace inflation, in both Kazakhstan (maturing) and Turkey (large TAM available). I expect income growth to lag revenue growth this year for a variety of reasons. I think the focus on short term estimates misses the forest for the trees.