TEKNOSA - Initiation of Coverage - Recommendation:
"BUY" – Target Price: TL10.0 – Upside Potential: 33%
Market leader sitting on ample cash
· We
initiate coverage of Teknosa with a BUY rating. A Sabancı Holding <SAHOL
TI> company, Teknosa is the largest consumer electronics retailer in Turkey
in terms of the number of stores and revenue. According to the research firm
GfK, Teknosa holds 45% market share in technical super stores (TSS) channel of
the market which company operates in.
· Teknosa’s
strong brand name, leading market position, Sabanci Holding backing and net
cash position (TL116mn at 1H12-end) suggest high growth potential given the low
per capita technology spend in Turkey and the highly fragmented nature of the
industry. We project that Teknosa will attain a 2011-14E revenue and earnings
CAGR of 20% and 21% respectively. We do not incorporate any contribution from
Teknosa’s recently launched online shopping website www.kliksa.com and highly likely inorganic
growth into our model.
· Starting
in 2H10, Teknosa switched from a purely growth oriented strategy to
profitability oriented strategy. Teknosa addresses the needs of clients through
directed marketing tools, flexible payment terms offered with bank credit cards
and Turuncu Card, a loyalty program. Furthermore, effective inventory and CRM
management that combines “Scientific Retailing” integrating sales and inventory
management and pricing and diversification of product portfolio by store/region,
have been implemented since 2006. Those initiatives set Teknosa apart from
competition. The company managed to increase EBITDA margin from 2.9% in 2010 to
5.2% in 2011 and aims to maintain EBITDA margin in the 5-6% range. We
conservatively assume low-end of the target range at 5.0-5.2% in our model.
· Teknosa
management provided guidance on 2012 earnings. Our forecasts are in line with
the guidance and we project 26% adjusted earnings growth in 2012E.
· We
value Teknosa using DCF. Our 12-mth target price is TL10.0/share, pointing to a
33% total return potential. Teknosa trades at a discount to whole domestic
retailers and at premium to global peers but offers stronger revenue growth
prospects.
· Key
risks to our recommendation include a sharp economic contraction, stiffer
competition and potential changes to the operating environment that may result
in slower store growth. Low free float at 10% and potential shareholder sales
after the expiration of the lock-up period in November also pose risks.
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