AYGAZ - Unsustainable dividend: BUY

Slightly lower EBITDA forecasts and valuation, TP cut to TRY11.37
We lower our 2013 and 2014 EBITDA estimates by 1% on slightly weaker than expected 4Q12 margins resulting from higher than expected operating expenses. Yet we raise our 2013 net profit estimate 14% on a higher forecast equity contribution from Enerji Yatirimlari, the Tupras SPV, on our recently increased net profit estimates for Tupras.

Much higher than expected dividend for 2013, but unsustainable
Management yesterday decided to propose doubling the dividend for 2013 to TRY300m (9.7% yield), c.200% more than our expectation. We understand management have also decided to use the upcoming two-year TRY150m bond issue for this. Although we like to see Aygaz’s balance sheet getting leveraged, we are surprised given the M&A prospects.

SoTP and relative forward-looking P/E valuation
Aygaz has traded at relatively low multiples (15% discount) compared with the rest of the market since 2003. We value the shares on a blend of relative forward-looking P/E (40%) and SoTP (60%). We attach a 10-20% discount to the fair values of Aygaz’s stakes to account for their minority status. Our TP is reduced to TRY11.37 from TRY11.68. Maintain BUY.

Latest quarterly results were slightly weaker than our estimates
Aygaz’s domestic distribution unit sales were down 3% y-y at 256k tonnes due to the somewhat unexpected slight y-y contraction in the Turkish LPG market in 4Q12 vs. our estimate of a flat market y-y for the quarter. Aygaz’s 4Q12 EBITDA of TRY49m came in slightly below our estimate of TRY52m (CNBCE consensus: TRY64m), on rather higher than expected operating expenses. The bottom line was significantly higher at TRY61m vs. our expectation of TRY45m (Consensus: TRY56m) on higher equity earnings from Enerji Yatirimlari, which owns 51% of Tupras.

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