Carrying values to be unlocked
Target price raised by 30% after recent transactions, MARKET OUTPERFORMER rating maintained. With this note we highlight the hidden values to be unlocked – i.e. the real estates that are to be disposed of and the mid-term high growth potential of the business that offers 22% CAGR in revenues and 75% in EBITDA in the next five years –highest among all Turkish food retailers. Our target price implies 0.7x 2012E EV/Sales for the stock (in line with domestic peer average at 0.7x). We believe Uyum deserves a higher multiple vs. its current 2012E EV/EBITDA at 0.6x and Sok’s deal multiple at 0.5x, as Sok was generating EBITDA loss and slower growth, whereas Uyum started to enjoy operational leverage as of 1Q12 and the EBITDA margin outlook is improving.
Uyum is the most aggressive food retailer of Turkey for being at the early stages of its life cycle. As of June-end, the company rolled out five new stores and we estimate 50% YoY growth in sales area in 2012. Going forward, we calculate strong mid-term growth potential for Uyum as its size is small enough to build upon. Plus, the strong supply of the contracting sector continues rapidly, providing Uyum with new residential areas to tap into. Recall that Uyum is strategically positioned to grow in mass housing complexes and these new residential areas are generally located away from city centers, which enables the inhabitant retailer to enjoy monopolistic nature within the area. Not the least, Uyum’s sales efficiency (revenue/sqm) is the highest after Bim among Turkish food retailers supported by its location strategy.
Hidden values seem to be overlooked: Uyum sits on estimated TL36mn worth of real estates (14% of its target mcap). Uyum is occasionally required to buy the stores instead of renting, as some contractors only look into divesting the assets. However, the company is going to sell and lease back these assets to create funding for future expansion. Recall that last month, Uyum sold the store area in Kayasehir for TL10mn. The company holds five more real estates that carry the same aspects and are possible candidates for further cash generation.
An attractive M&A target. We find Uyum attractive for i) large retailers to penetrate into Istanbul, ii) for foreign funds to take position in Turkey’s high growth potential of the retail industry and iii) for private equity funds to invest in a growing asset. Hence, the company is in the radar of several institutions and media cites Uyum as a strong M&A candidate at every occasion. Recall the company’s announcement of a confidentiality with Permira in August 2011 and news flow in the media stating that Tesco of UK is interested in acquiring all of the majority stake. We see three potential options feasible for Uyum.
Risks to our valuation. Store additions to lag and an unfavorable deal price to come out, should there be and M&A deal.