We upgrade to BUY from Hold
on recent weakness
We reduce our target price for Tekfen Holding from TRY7.90/share to TRY7.70/share on the back of a higher risk-free rate (USD-based, up from 4.5% to 6%), which is partially compensated by the higher FX rate used to convert the USD based TP to TRY. Following the recent share price weakness, we upgrade our recommendation from Hold to BUY.
We increase our TRY-based forecasts on the back of higher FX rate
We increase our TRY-based FY13E EBITDA by 6% and FY13E EPS by 3%, reflecting higher FX rates. Based on 1Q13 results, there could be further upside to our agri segment estimates. However, DAP prices remain weak, and we expect a lag for higher FX rates to be reflected in prices. Therefore, we prefer to err toward caution until there is further visibility.
We reduce our target price for Tekfen Holding from TRY7.90/share to TRY7.70/share on the back of a higher risk-free rate (USD-based, up from 4.5% to 6%), which is partially compensated by the higher FX rate used to convert the USD based TP to TRY. Following the recent share price weakness, we upgrade our recommendation from Hold to BUY.
We increase our TRY-based forecasts on the back of higher FX rate
We increase our TRY-based FY13E EBITDA by 6% and FY13E EPS by 3%, reflecting higher FX rates. Based on 1Q13 results, there could be further upside to our agri segment estimates. However, DAP prices remain weak, and we expect a lag for higher FX rates to be reflected in prices. Therefore, we prefer to err toward caution until there is further visibility.
SoTP-based TP is lowered to TRY7.70
Our TP is based on SoTP, with a 15% holding discount to our NAV estimate. Upside risks are higher-than-expected normalised contracting EBITDA margins and a sustained recovery in agri margins. Downside risks are lower order additions amid a sharp fall in oil prices and fertilizer margins amid capacity additions in Turkey.
Valuation reflects long-term growth concerns for contracting
The prospects for large-scale projects in contracting (especially Socar-related projects) are strong in the medium term. On the other hand, fierce competition in regions outside Tekfen’s established territories may lead it to be less aggressive on growth in these regions. Nevertheless, both our medium-term revenue and growth forecasts are already cautious, reflecting these concerns. For contracting, our 2022E USD-based revenue is at par to FY12A revenue, and our long-term EBITDA margin estimate is 8.5% (FY08-12 average: 9.8%). Assuming all else constant, a 1ppt change in contracting EBITDA margin will lead to a 9% change in our NAV.
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