TAV Havalimanları - TAVHL Company Update

TURKEY – TAVHL – Company Update: The Show Goes On; Short term rating upgraded to OUTPERFORM

BUY (L/T) OUTPERFORM (S/T)

Target price raised due to new projects and better margins foreseen -- We raise our target price to TRL11.1 from TRL10.3 per share, while re-iterating our BUY rating. We now include for the first time in our valuation the two new concessions the Company won recently (Izmir and Medina airports) and expect higher margins and/or growth than before from the Tunisian and service businesses. We raise our S/T rating to OUTPERFORM on strong 2012 growth, first-time dividends, and the potential trade sale.

Front-loaded huge earnings increase expectations in the next few years maintained -- We expect earnings will grow by nearly 50% per annum in between 2011 and 2014, mainly due to increasing revenues and operating profits. We have raised our earnings estimates for 2012 and 2013 due to new projects, and expectations of better margins in certain businesses.

Dividend payments to start in 2012 -- The Company plans to pay dividend for the first time in 2012. We estimate it will be more than EUR30mn, implying a yield of 3%. We expect dividend will increase significantly in the year ahead, assuming the Company does not get involved in a project requiring significant equity contribution.

Leverage to continue easing, despite new projects -- Net debt over EBITDA is foreseen to continue to improve c.10% p.a. from 3.1x in 2011 to 2.3x by 2014, despite new projects and starting of dividend payments by 2012.

Trade sale may act as a short-term trigger -- We estimate the planned trade sale by the majority shareholders, if agreed, will be notably above the current stock price and decided upon soon. However, a compulsory tender offer to minorities following the prospective sale is not certain, as the potential buyer is likely to have less than a 50% stake. EFG