Freedom Holding Corp. (NASDAQ:FRHC) is a diversified financial services company that has established a strong presence across multiple regions, including Central Asia, Europe, the United States, and the Middle East/Caucasus. With a comprehensive suite of offerings, ranging from retail securities brokerage and investment banking to commercial banking and insurance, FRHC has positioned itself as a leading player in the global financial services industry.
Business Overview
At the core of FRHC's operations is its retail securities brokerage business, which provides a wide range of services to individual and institutional clients seeking access to international capital markets. The company's brokerage services include securities trading, margin lending, investment research, and investor education. FRHC's brokerage operations are supported by a robust technological infrastructure, including its proprietary "Tradernet" electronic trading platform, which plays a crucial role in serving its customer base.
In addition to its brokerage services, FRHC has expanded its business model to include capital markets and investment banking activities. The company's investment banking team focuses on providing strategic advisory services and capital markets solutions to corporate clients across multiple sectors, including consumer and business services, energy, financial institutions, real estate, technology, media, and communications.
FRHC's banking segment, operated through its subsidiary Freedom Bank KZ, offers a range of commercial banking services, such as lending operations, deposit services, money transfers, and payment card services. The company's insurance business, which includes its Freedom Life and Freedom Insurance subsidiaries, provides consumer life and general insurance products and services in Kazakhstan.
Recent Developments and Acquisitions
In line with its strategy to build a comprehensive digital fintech ecosystem, FRHC has made several strategic acquisitions and investments over the past year. In April 2023, the company completed the acquisitions of Aviata LLP and Internet-Tourism LLP, two leading online travel ticket aggregators in Kazakhstan, to expand its presence in the digital services sector. Additionally, in July 2023, FRHC acquired a 90% stake in ReKassa LLP, a Kazakhstan-based digital service for cash transaction data management, further strengthening its digital capabilities.
On November 27, 2023, FRHC's Board of Directors approved a plan to expand the company's business by entering the telecommunications market in Kazakhstan through its newly established subsidiary, Freedom Telecom. The company plans to invest approximately $650 million over the next five years to establish a new independent telecommunications operator in Kazakhstan, providing mobile communication, broadband internet, and digital services to customers. This strategic move aligns with FRHC's vision to create a comprehensive digital fintech ecosystem that integrates its core financial services with complementary offerings.
Financials
FRHC has delivered strong financial results, with annual revenue reaching $1,565,844,000 and net income of $375,540,000 in the most recent fiscal year. The company's quarterly performance has also been impressive, with revenue of $418,634,000 and net income of $96,075,000 in the three-month period ended December 31, 2023.
The company's revenue growth has been driven by a combination of factors, including the expansion of its retail brokerage business, the growth of its banking and insurance operations, and the successful integration of its recent acquisitions. FRHC's fee and commission income, which accounted for 28% of total revenue in the nine-month period ended December 31, 2023, has been a significant contributor to the company's top-line performance, with a 30% year-over-year increase.
The company's interest income has also been a key driver of revenue growth, increasing by 214% year-over-year in the nine-month period ended December 31, 2023, primarily due to the growth of its loan portfolio and higher yields on its investment securities. FRHC's insurance underwriting income has also seen a substantial increase of 130% year-over-year during the same period, reflecting the expansion of its insurance business.
Geographic Breakdown
FRHC's operations are organized into four geographic segments: Central Asia and Eastern Europe, Europe Excluding Eastern Europe, the United States, and Middle East/Caucasus. The Central Asia and Eastern Europe segment, which includes the company's operations in Kazakhstan, Kyrgyzstan, and Uzbekistan, has been the largest contributor to FRHC's revenue, accounting for approximately 88% of total revenue in the nine-month period ended December 31, 2023.
The Europe Excluding Eastern Europe segment, which encompasses the company's operations in Cyprus, the United Kingdom, and Germany, contributed approximately 9% of total revenue during the same period. The United States segment, which includes the company's investment banking and capital markets advisory services, generated around 1% of total revenue, while the Middle East/Caucasus segment, which is in the developmental stage, contributed approximately 2% of total revenue.
Liquidity
FRHC maintains a strong liquidity position, with cash and cash equivalents of $561,883,000 and net liquid assets (cash, trading securities, and margin lending receivables, net of securities repurchase agreement obligations) of $2,314,555,000 as of December 31, 2023. The company's capital adequacy ratios across its various subsidiaries exceed the minimum regulatory requirements, providing a solid foundation for continued growth and expansion.
FRHC's financing activities have included the issuance of debt securities, such as the $200 million in U.S. dollar-denominated bonds due 2028 that were issued in December 2023 to fund the development of its new telecommunications business. The company's short-term financing needs are primarily met through securities repurchase agreements, which accounted for $2,889,173,000, or 79% of the company's trading securities portfolio, as of December 31, 2023.
Risks and Challenges
While FRHC has demonstrated impressive growth and financial performance, the company faces several risks and challenges that investors should be aware of. The ongoing Russia-Ukraine conflict and the resulting economic sanctions have had a significant impact on the company's operations, particularly its exposure to Russian clients and its proprietary trading activities. FRHC has taken steps to mitigate these risks, including the divestiture of its Russian subsidiaries in February 2023.
Additionally, the company's expansion into new business areas, such as telecommunications and media, carries inherent risks and uncertainties. The successful execution of these strategic initiatives will depend on FRHC's ability to effectively manage the associated capital expenditures, integrate new acquisitions, and navigate the competitive landscape in these new markets.
Outlook
Despite the challenges, FRHC's diversified business model, strong liquidity position, and strategic initiatives position the company for continued growth and success. The company's entry into the telecommunications and media sectors in Kazakhstan, if executed successfully, has the potential to create significant synergies and drive further expansion of its digital fintech ecosystem.
FRHC's management has provided guidance that the company's new telecommunications subsidiary, Freedom Telecom, is expected to be loss-making in 2024, 2025, and 2026, with profitability forecasted to commence in 2027. Similarly, the company's recently established media subsidiary, Freedom Media, is projected to incur losses in 2024 and 2025, with profitability expected from 2026 onwards.
Conclusion
Overall, FRHC's robust financial performance, diversified business model, and strategic vision make it a compelling investment opportunity in the dynamic financial services industry. The company's ability to navigate the evolving market landscape and successfully execute its growth initiatives will be key to its long-term success.