■ Harranova creates the main upside since ca. 25% lower production cost
in the region due to government incentives (compared to the western plant)
should improve margins with further steps taken in the project. Tat targets
165,000 tons of tomato paste production in Harranova by 2016, tripling the
current total production capacity, yet due to the delay in realizing previous
targets, we cut our estimates and we expect total production capacity to almost
double (increase by 91%) by 2016.
■ Tat Konserve was one of the top
underperformers on the ISE in 2011, by 33% yoy, suggesting that the market is overly punishing
the delay in realizing previous guidance in
Harranova. In addition, government interventions in the meat sector and
high input costs during 2011 should be the other reasons for the
underperformance, while these should not be further concerns for 2012 (especially with a stabilized meat sector). Thus, we
expect a recovery in the stock’s relative performance in 2012 on the
back of the defensive nature of its business and operational recovery in
segments.
■ High leverage ratio to improve with
the expected sale of Tuzla land, creating an upside risk for the stock. In Sep’2011, two
advisers were hired to sell the property and
175,000 sqm land should be sold at an attractive value, which we
calculate to be around USD 40-50mn, since the district is expected to be on the
route of the 3rd bridge’s path.
■ The stock currently trades at 11.0x 2012E
EV/EBITDA and 16.7x 2012E P/E, compared to its 3-year historical average of 12.0x and 13.1x,
respectively.
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