Rising marketing expenses
and lower tomato paste exports
Tat Konserve (Tat) has begun a major marketing campaign to build a strong brand image in the dairy and processed meat segments in which it plans to increase market share. Also, Tat has significantly reduced the size of its production plans for tomato paste in South East Anatolia (SEA), which has severely diminished our growth forecasts.
Rising rental costs hurt the growth of tomato processing in SEA
As well as suspending new investment in tomato processing, Tat is focusing on increasing market share in the dairy and processed meat segments by raising brand awareness. Strong advertising campaigns and a strong lead in pasteurized milk with the introduction of new technology have helped it raise its share in pasteurized milk by 8ppt to 38%.
We cut our TP 23% given the weak earnings outlook
Our fair value and target price is based on a blended DCF/peer valuation with 75/25 respective weightings. Higher agriculture prices and bumper crops are the main upside risk to our view. Poor weather and government intervention in the food market are the main downside risks.
We cut our 2013 and 2014 EBITDA estimates by 24% and 21%
We cut our revenue and net profit estimates by 11% and 51% for 2013 and by 10% and 42% for 2014E due to lower revenues from tomato processing and higher marketing expenses. Tat has cut the pace of capacity growth and future production targets in SEA, where we cut our tomato paste production estimates by over half to 50,000 tonnes from 110,000 tonnes by 2016. Note that we expect tomato paste production of 25,000 tonnes in the SEA in 2013. We have increased our marketing expense forecast by 15% for FY12E given the intensive brand-building activity and stiff competition.
Tat Konserve (Tat) has begun a major marketing campaign to build a strong brand image in the dairy and processed meat segments in which it plans to increase market share. Also, Tat has significantly reduced the size of its production plans for tomato paste in South East Anatolia (SEA), which has severely diminished our growth forecasts.
Rising rental costs hurt the growth of tomato processing in SEA
As well as suspending new investment in tomato processing, Tat is focusing on increasing market share in the dairy and processed meat segments by raising brand awareness. Strong advertising campaigns and a strong lead in pasteurized milk with the introduction of new technology have helped it raise its share in pasteurized milk by 8ppt to 38%.
We cut our TP 23% given the weak earnings outlook
Our fair value and target price is based on a blended DCF/peer valuation with 75/25 respective weightings. Higher agriculture prices and bumper crops are the main upside risk to our view. Poor weather and government intervention in the food market are the main downside risks.
We cut our 2013 and 2014 EBITDA estimates by 24% and 21%
We cut our revenue and net profit estimates by 11% and 51% for 2013 and by 10% and 42% for 2014E due to lower revenues from tomato processing and higher marketing expenses. Tat has cut the pace of capacity growth and future production targets in SEA, where we cut our tomato paste production estimates by over half to 50,000 tonnes from 110,000 tonnes by 2016. Note that we expect tomato paste production of 25,000 tonnes in the SEA in 2013. We have increased our marketing expense forecast by 15% for FY12E given the intensive brand-building activity and stiff competition.
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