Shares have underperformed
the ISE-100 by 13% QTD
We upgrade Turk Telekom to BUY on valuation grounds after its recent weak share price performance alongside its 11% FY13E dividend yield. Indeed, the stock has underperformed the ISE-100 by 13% so far in 4Q12. We acknowledge that operating trends, particularly in the fixed-line segment, were not supportive. Yet, we conclude that the stock is oversold.
SPO pressure seems to outweigh
We believe a couple of factors have driven the weak share performance: 1) its weak fixed-line business; 2) market speculation of a potential SPO; and 3) macroeconomic events rewarding cyclical rather than defensive names in relative terms. We treat the last two as temporary and believe we are fairly reflecting the first factor in our numbers.
11% dividend yield in FY13E
We maintain our TP at TRY7.46 as a lower assumed cost of equity is offset by lower estimates. Slower-than-expected fixed-line broadband and competitive pressures in mobile are the main downside risks to our call. The 11% FY13E dividend yield is eye-catching, particularly when we take into account negative real rates on TRY time deposits and bonds.
We upgrade Turk Telekom to BUY on valuation grounds after its recent weak share price performance alongside its 11% FY13E dividend yield. Indeed, the stock has underperformed the ISE-100 by 13% so far in 4Q12. We acknowledge that operating trends, particularly in the fixed-line segment, were not supportive. Yet, we conclude that the stock is oversold.
SPO pressure seems to outweigh
We believe a couple of factors have driven the weak share performance: 1) its weak fixed-line business; 2) market speculation of a potential SPO; and 3) macroeconomic events rewarding cyclical rather than defensive names in relative terms. We treat the last two as temporary and believe we are fairly reflecting the first factor in our numbers.
11% dividend yield in FY13E
We maintain our TP at TRY7.46 as a lower assumed cost of equity is offset by lower estimates. Slower-than-expected fixed-line broadband and competitive pressures in mobile are the main downside risks to our call. The 11% FY13E dividend yield is eye-catching, particularly when we take into account negative real rates on TRY time deposits and bonds.
PSTN dilutes long-term potential of broadband and mobile
The mobile business is running stronger than we had originally anticipated and we are raising our mobile EBITDA estimates for 2012 and 2013 by 15% and 19%, respectively. The relatively stable mobile environment is helping our confidence. On fixed-line, we are increasing our EBITDA estimate by 1% for 2012 and decreasing it by 2% for 2013. While we are incorporating slower growth in DSL and faster contraction in PSTN, we forecast robust data services revenue offsetting this. We continue to believe in the long-term prospects of fixed-line broadband, while remaining pessimistic about PSTN. We forecast household PSTN penetration falling from 72% in 2012 to 55% by 2020.
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