25 Nisan 2012 Çarşamba

DOGAN HOLDING - Information Note / BUY

·     After settlement of its media subsidiaries’ tax disputes in May 2011, Dogan Holding management’s focus is back on operations. Recent divestitures of subsidiaries such as Dogan Yayin Holding’s <DYHOL TI> sale of Star TV and Hurriyet’s  <HURGZ TI> sale of real estate provided  much needed cash for its subsidiaries and eased concerns on their balance sheets, reducing the risk to parent Dogan Holding.
·     Dogan Holding has a solo net cash of US$1.2bn which is higher than its market cap by 15%. Its strong financial position protects the company from macro/company specific risks as well as providing acquisition opportunities.  Energy might be the main sector for both organic and inorganic growth. Dogan Holding holds 33% stake in two Hydroelectric Power Plant projects (HEPP) which have a capacity of 630MW. The plants are expected to be operational in 2013. The holding is also in talks with fuel distributor, “FULL” to acquire entire/some stake. Moreover, Dogan Holding has an investment in Iraq to explore petroleum together with Newage Alzarooni in Gas Plus Erbil (50/50 JV). 
·    Media operations currently comprise c90% of Dogan Holding’s revenue. We have a positive view on DYH <DYHOL TI> and Hurriyet <HURGZ TI> which are the largest subsidiaries of the Group. DYH sold Star TV which had an EBITDA loss of TL78mn in 2011. Without Star TV, DYH posted an EBITDA of TL269mn. Through keen focus on cost cutting across all media subsidiaries; we project an improvement in DYH’s EBITDA margin from 10.3% in 2011 to c14% in 2012E.
·    Our sum-of-the-parts valuation points to a 12-mth target price of TL1.24/share, indicating a 63% return potential. Our 12-mth target price is based on a 30% discount to the target value of the underlying assets of Dogan Holding. Dogan Holding also trades at a 53% discount to current NAV. Our valuation does not incorporate hidden values which may come from energy operations in Iraq and possible acquisition of FULL.
·    The major risks are a worse than expected slowdown in the economy, weak TL, a more challenging competitive landscape after the sale of Star TV and the upcoming sale of ATV/Sabah in addition to delays in investment plans and extension of the probe into the Feb 28, 1997 post-modern coup case to the Group.

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