Turkcell Overweight

Turkcell Overweight

In the judgment published on Jan 30th, the UK Privy Council appears to have; decided that under some still to be determined conditions, Cukurova should be; allowed to regain control over its shares in the Turkcell holding structure. This; was correctly seen by the market as likely to delay dividend resumption relative to; the Altimo victory scenario.

 

However, we still believe that a resolution of the; dispute is approaching, as the legal process is coming to an end. Moreover, we; expect 4Q12 results (due Feb 21) to be supportive of earnings upgrades as; revenue growth continues to reaccelerate in Turkey. We raise our YE2013 price; target to TRY 15 from TRY 14 (note this assumes no dividend payment in 2013) on; the back of EBITDA estimate upgrades of 2.5% /3.9% for 2013/2014.

 

• Privy Council Decision Apparent Victory for Cukurova, Delays; Dividend Resumption. It appears from the judgment that as long as it can; repay the original loan to Alfa along with some interest and costs, Cukurova; should be able to recover its shares in Cukurova Telecom Holdings and; therefore control of Turkcell (or joint control with Alfa given the need for; unanimous decisions). Had Altimo been able to keep the appropriated; shares, dividend resumption would likely have been relatively rapid. In this; scenario, a new agreement between shareholders may be required,; increasing the uncertainty on the timing of dividends.

• Resolution Still Likely Within Reach, Decision Could Result in Larger; Special Dividends. While uncertainty remains, we believe the end of the; dispute should be close given the Privy Council decision is final, and; shareholders will have to reach a new agreement. We note that should; Altimo not wish to stay on without full control, a resolution similar to that; seen at Megafon could be a possibility, and this could lead to even larger; than expected special dividend payments.

 

• Double Digit Service Revenue Growth in Turkey Likely to Lead to; Estimate Upgrades. We expect Turkcell to come at the high end of/above; its guidance range with a particular highlight being double digit service; revenue and EBITDA growth in Turkey.; Raising PT to TRY 15. Our DCF and multiple price target for YE2013 is; assuming no dividend payment in 2013, and assumes 2014E EV/EBITDA; and P/E multiples of 5.0 and 11.8. Turkcell remains one of our favorite; names in CEEMEA telecoms with the shareholder resolution and market; repair/earnings growth recovery providing two strong share price drivers.