13 Nisan 2012 Cuma

MIGROS / BUY (Maintained)

*         Migros reported better than expected 4Q11 net profit of TL72mn earlier this week mainly resulting from a higher than expected EBITDA margin at 6.5%, as it reaped the benefits of successful marketing campaigns and supply chain optimization.

*         We expect 13% top-line growth and a 6.4% EBITDA margin in 2012E, in line with guidance. The company stated that they are ahead of their store roll-out plans as of 1Q12 and traffic trend is positive, which is good news for 1Q12 results in our view.

*         EUR/TL assumptions play a key role in earnings estimates for Migros due to its EUR1.1bn debt. With EUR5mn debt due in 2012E and EUR58mn in 2013E, the majority of the company's net financial expense line is driven by unrealized fx gains/(losses). We project a 2% appreciation in TL against EUR in 2012E and have a net earnings estimate of TL147mn. In contrast, with the 19% depreciation of TL against the EUR in 2011, Migros booked net fx losses of TL383mn and net loss of TL163mn despite a one-off gain of TL206mn on the sale of Sok.

*         There are no major changes to our forecasts but we have revisited our valuation with two new assumptions. First, we incorporated a lower risk-free rate of 9.5% into our DCF (vs. 10% before) as we do now for all stocks in our coverage universe. That would have normally raised our TP by 13%. However, simultaneously, we made a downward revision to our working capital cycle assumptions as Migros will have to comply with the new Commercial Code limiting payment terms to suppliers to 60 days. Payment terms are currently around 90 days according to the management. Accordingly, our 12-mth TP remains unchanged at TL20.50/share.

*         BUY maintained with 20% upside. We like Migros as a defensive play in an environment with inflationary pressures and decelerating growth. We also believe that the company could potentially deliver higher growth and margins than predicted ahead of an exit of its owners private equity group BC Partners, which could take place in the next two years. The main risks to our valuation is a weaker TL than expected resulting in larger fx losses and a less smooth transition to lower payment terms with the new Commercial Code.

BGC Partners

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