We think that good investor should look for the places where irrationality accumulates a lot. Irrationality can either pop up stock prices to the sky or decrease them to the bottom. This irrationality creates great opportunities to make huge money either by buying long underestimated stocks or selling shortoverestimating.Such places, indeed, are not very common. However, political crisis and economical disturbance can create such places. This combination of political and economical crisis created panic in the market and made stocks of many Russian companies very cheap. One of such companies, which we think as a great investment is Tinkoff Bank. Primarily, you can buy shares of TCS Group Holding PLC which are traded on the LSE now. TCS Group holds Tinkoff Bank, which is its subsidiary. Tinkoff Bank offers credit and debit cards; private customer current accounts; savings, deposits, and investment savings products; custody services; consumer loans; and e-wallets. Its main domain is issuing credit/debit cards and developing online retail deposits. Tinkoff Bank positioning itself as innovative e-bank. It was launched in 2006 by Oleg Tinkov, one of the most known Russian entrepreneurs. For the last 9 years,Tinkoff Bank has grown into a leader in credit cards (7,0% of the market). Bank experienced amazing growth, as you can see CAGR(Compound Annual Growth Rate) equals to 88% vs. Market CAGR 28%. Market shown in bln RUB: In 2013 Tinkoff Bank made IPO on the LSE. Initially its shares have been sold on the very high level (18$), until in 2014 crisis happened: Now shares are traded at the level of $3. However, we think it is bad idea to buy stocks only because they are cheap now and were higher before. We want to find solid businesses which will make money further. So, an intelligent investor should investigate core businesses of company. The first thing that will be noticed by investor is that P/E 16.8 which is quite high for the industry (Industry median 13.1). Also, Investor would find that company’s net income, ROE and ROA were dropping in the last quarters (net income in RUB bln): Comparing first half of 2015 to the 2014, we see dramatic decline in the net income by 88,78% and ROE to 7,6%. But there is a reason, why Tinkoff Bank experiences such dramatic decline. Financial crisis happened. Volatility in the rubble made Central Bank of Russia to increase its interest rate up to 17% from 10%. This movement almost destroyed financial sector of the economy. Net Income of the commercial banks fell to the level, which nobody saw from the very beginning of the Russian Federation. Impact of this action you can see here(net income in RUB bln): So, considering this market trend Tinkoff Bank showed financial strength and only slightly went to the minus. We should notice that before crisis ROE of the company was 24.1% vs. Industry’s 8.27%. As bank, Tinkoff Bank has some key ratios, which should be looked in order to assesstheir profitability. One of them is NIM (Net Interest Margin) and NII (Net Interest Income), these indicators show how good bank makes money from its core business, which is mostly the reallocation of financial assets. Tinkoff Bank's NII and NIM is not as bad, as we can see here( NII in RUB bln): It decreased by 15% comparing to the first half of 2014. This change is not so big, comparing to the changes in the net income. Also, NIM is still very high and above Industry averages. The causes, why NII decreased is that cost of borrowing increased to the 14.1% from 10.1 % in the end of 2014. This increased Interest expenses by 55.2%. Volatility of the rubble also had an effect on the company. CEO of Tinkoff Bank, Oliver Hughes in the investor and analyst call at 27th of August said that they consciously let net income to fell to this level. Tinkoff Bank has Eurobonds at liability side, which started to become too expensive with new exchange rate. Therefore, they concentrate on the repurchase program in order to "clear" this risky and costly debts. They completed their job, so by the end of this year, they will only have dollar denominated bonds (EMTN] with size of 200 mln $, which will mature in the 2018. Another factor, which should be investigated by investor is liquidity of the company. We think that this maybe is one of the key factors for the banks especially. Regarding to the Tinkoff Bank, CEO of company himself stated that they are highly concentrated on accumulating cash in order to defend itself from the risks. They increased amount of cash and investment securities from 16,3 billion rubles in the end of 2014to the current 29,5 billion rubles. In the asset structure it increased from 15%from total assets to the 24%. More detailed picture of assets of the company you can see here(assets in RUB bln): Debt-to-Equity ratio equals to the 0.17 vs. Industry’s median 0.67 , which means that Tinkoff Bank doesn't use leverage as actively as usually banks do. This means that they are not as profitable as they could be, if they increased leverage. But in the time of financial distress we think that this is a sign of an intelligent management of the company. Such low Debt-to-Equity ratio explained before, as company continuously repurchased its foreign debt. Russian regulator - Central Bank of Russia itself has a normative on capital and liquidity which bank easily complies. However, N1.0 has trend to decline (as riskiness of assets increased). In the case, when bank falls below norms, it will be closed. So, maybe itis most important ratios. Ratios N1.0, N1.1 and N1.2 for Tinkoff Bank shown here: At this moment you should think that Tinkoff Bank conservatively waits the financial storm. However, Tinkoff attacks and attacks quite aggressively. It launched new line of credit/debit cards cobranded with AliExpress, eBay, Lamoda, Rendez-Vous, Tele2 and others. By this step they want to trigger organic rise of their credit card portfolio. Bank also use non-organic tools to increase its portfolio, so Tinkoff Bank purchased high quality credit card portfolio from SvyaznoyBank. SvyaznoyBank recently closed by regulator, so this portfolio was quite cheap. Also several actions was made in order to buy assets of other drowning banks. Company is expecting to expand in this quite passive market. Moreover, Bank created new service as a fully functional platform for origination of mortgage loans with partner banks. Partnership agreements have been reached with four large Russian mortgage lenders including DeltaCredit, TransCapitalBank, Intercommerz Bank and Housing Finance Bank, while negotiations with other potential partners are still ongoing. Tinkoff Bank’s mortgage platform provides convenience for customers who will only need to contact the bank’s call centre or submit an online form to apply for a loan. Based on the assessment of the potential customer’s needs and borrowing capacity, Tinkoff Bank will select the most suitable product among those offered by partner banks and negotiate the loan terms. Following this process, the customer will be able to close the deal with the selected partner bank. Bank will be working with appraisers, insurers and partner banks which will not involve any service fee for the customer. Tinkoff Bank will not act as a mortgage loan provider and therefore will not take on any mortgage risks. Loans will be provided by specialized partner banks which will pay a fee to Tinkoff Bank for every new customer. Oliver Hughes, CEO of Tinkoff Bank, said in the recent conference call for investors that this new fee service platform will be part of bigger system, which will be created by Bank. They expected to provide brokerage service, insurance and others. Concluding all this, we should provide an argument, why we believe that Bank will return to the $18 price range. There are several factors: Oleg Tinkov Oleg Tinkov – founder of the company, he has more than 50% of stake in it now. So highly interested in the success of this business. He actively engaged in the everyday operational activities of company. That is good.Tinkov is a serial entrepreneur, who created and successfully sold businesses. All his businesses were profitable, and he made Tinkoff Bank into one of the leaders in the industry.Therefore, he knows how to make money and he knows how to make business in the crisis as he started his first business in the 90s. Good Management This factor hardly can be assessed precisely, but we find side signs that management of company is really good. First, Tinkoff Bank is one of the most favorable bank by customers (top-3 rated in the Банки.ру). Second, Tinkoff Bank awarded as "Most Efficient Bank" by Markswebb Rank&Report in 2015, "Best internet-bank №1 in Russia" byGlobal Finance in 2015, and "Best Mobile App" by Deloitte 2014. These all show that managers do their job good and likely will continue to do it. Valuation Ordinary valuation based on the assumptions that average growth in the past will somehow reflect future growth. However, Graham in his book "Security Analysis" was skeptic by this approach, as average growth is just number, which can't reflect business performance fully. Intelligent investor, therefore, should bear in mind this fact while trying to evaluate intrinsic value, which is also very ambiguous. Intrinsic value can't be specific value, but it can be in some range, which will give you margin of safety.So, using this information we calculated possible intrinsic value, which is not perfect, but can create some borders for investors. Margin of safety varies from 500% to 848%. Such range is an astonishing score. Actually, we believe in that, as Tinkoff Bank will return to 2014 level results in a few years, as Russian economy will go up. Bank will be even stronger than before crisis and we expect further growth in the market share. It is hard to predict exact numbers, but early signs of this growth are provided before. Considering all above information, our recommendation is: STRONG BUY