1 Şubat 2013 Cuma

Ulker Biskuvi (ULKER TI) : Upgrade to OW: Superior performance deserves credit

* Strong margin improvement in 2012 following the acquisition of chocolate business and restructuring

* We expect company to announce EBITDA margins of 9.4% in 2012 and 10.5% in 2013, much higher than 2011's 4.3%

* We raise our target price to TRY11.75 (from TRY8.9) following the cut in our Turkish risk-free rate assumption and rolling forward our DCF period; upgrade to Overweight from Neutral

Strong margin performance in 2012: Ulker Biskuvi reported significant margin expansion for 9M 2012 at both the gross margin and EBITDA margin level. We believe this is mainly due to the acquisition of the higher-margin chocolate business, stable raw material prices, the streamlining of operations and the simplification of the corporate structure, especially the restructuring of domestic distribution channels.

More restructuring and margin improvement to come: In 2012 Ulker Biskuvi carried out restructuring on three fronts - the corporate structure, the share structure and the distribution channel. This has unlocked considerable value. We believe there is further scope for corporate restructuring as well as restructuring of the distribution channel, which could lead to further margin expansion. The company has guided for an EBITDA margin of 12% in 2014 and we believe that Ulker will deliver on its guidance.

International expansion can further improve Ulker's growth potential, which is already better than the average for EM peers: Ulker is currently looking to expand into MENA as well as Eastern European markets. The current confectionary consumption levels and demographics clearly imply strong growth potential in these markets, and in our opinion Ulker will benefit from expanding into these regions.

Increase target price to TRY11.75 from TRY8.9 and upgrade to Overweight from Neutral. The increase in our target price is due to our lower risk-free rate assumption leading to a lower WACC and the rolling forward of the start of the DCF period to 2013 rather than because of any major change in our estimates. Ulker is currently trading at a discount to EM peers in terms of valuation multiples, which we believe is at odds with its growth potential in the medium term. Despite being an outperformer relative to the ISE-100 index in 2012, we think growing profitability and option value related to the acquisition of regional assets and further gains on efficiency could provide upside surprise in 2013-2014 and serve as positive catalysts for the shares.


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