S&P Upgrades Freedom Subsidiaries but Core Risks Linger

What happened

S&P Global Ratings upgraded several Freedom Holding subsidiaries to 'BB-' with stable outlook, reflecting improved credit profiles at Freedom Finance JSC, Freedom Finance Europe, Freedom Finance Global, and Freedom Bank Kazakhstan. While the upgrade modestly reduces funding costs and signals some progress, the Deep Value master report emphasizes that the company's earnings have collapsed from $376 million in 2024 to $85 million in 2025 due to regulatory headwinds, higher taxes, and volatile trading and FX results. The upgrade does not address the structural issues of heavy reliance on a single market maker for 56% of fee income and concentration in Kazakh sovereign securities. The stock still trades at ~165x trailing earnings with a 6.9% ROE, implying the market is pricing in a recovery that remains highly uncertain. Therefore, the upgrade is a marginal positive but does not alter the bearish risk-reward profile.

Implication

The upgrade to 'BB-' may lower borrowing costs for the SPC bonds and support balance sheet stability, but it does not resolve the fundamental earnings drag from Kazakh tax increases and insurance commission caps. The company's net income remains highly volatile, and free cash flow is driven by balance-sheet swings rather than operating profits. With a single customer generating 15% of total revenue and 56% of fee income, concentration risk remains acute. At 165x trailing P/E and 0.74x interest coverage, the valuation leaves no margin of safety. Investors should remain on the sidelines until a clear earnings recovery trajectory emerges, preferably at entry prices near $90.

Thesis delta

The S&P upgrade is a modest positive but does not shift our thesis that Freedom Holding is overvalued given earnings volatility, regulatory pressures, and customer concentration. We maintain a POTENTIAL SELL rating with trim above $170 and attractive entry at $90. The upgrade marginally reduces default risk but does not improve the expected return profile.