SAHOL (Long) / KCHOL (Short) - 27th Decembe

PAIR TRADE: SAHOL (Long) / KCHOL (Short)
 

Current Δ: TL0.60  

 

Target Δ: TL0.95 / Stop-loss Δ: TL0.31

Sabanci Holding and Koc Holding share prices have been correlated by a factor of 0.82x and 0.96x in the last one month and three months, respectively. The current price differential (Δ) between SAHOL and KCHOL is at TL0.60. This is 1.8x standard deviation lower than average last one month price differential of TL0.95, which suggests that KCHOL shares are relatively overvalued.  Our quantitative model suggests going long on SAHOL and short on KCHOL. We target TL0.95 price difference which offers 4% return, while our stop-loss level is at Δ: TL0.31 (1.5x standard deviation below the current level) implying 3% loss.          

Long: Sabanci Holding’s (SAHOL, TP TL11.00, Buy, upside 12%) current NAV discount is c.29% compared to both last two years’ and five years’ 34% average. Verbund swapped 50% EnerjiSA stake with E.ON in return for hydro plants in Germany plus cash, which implies c.US$4bn total value for EnerjiSA. Accordingly, we revised our 12M target price to TL11.00 (from TL9.20). We believe the current NAV discount will narrow to c.20% in the coming years due to IPOs of subsidiaries and more balanced portfolio with energy business’ contributions. 

Short: Koc Holding’s (KCHOL, TP TL9.00, Market performer, upside -2%) current NAV discount is c.11% compared to 13% of last two years’ and to 21% of last five years’ average. Recently, the conglomerate (40% stake in consortium) received 25-years operating rights of highways and bridges for US$5.7bn. However, the contribution to NAV is currently vague due to lack of details; hence we do not incorporate any value yet. We believe NAV discount will converge into last two years’ average of 13%.  

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