ULKER BISKUVI (Company Update - HOLD (maintained), 14% downside)

• We still find no upside potential despite the upward revision in estimates… Our TP is raised to TL11.6 per share (14% downside potential) from previous TL9.0 per share with some revisions in our estimates. We still do not find Ulker Biskuvi undervalued, the stock trades at 2013E and 2014E EV/EBITDA of 16.3x and 13.6x and P/E of 26.2x and 21.3x, respectively, far above market levels. The stock increased by 103%, y/y, outperforming the index by 64%. We think that the whole turnaround and restructuring story is fully priced in for Ulker Biskuvi.

 

• 2013 and 2014 Guidance: Ulker Biskuvi’s 2013 guidance is as follows: TL2.5bn-TL2.7bn revenues (2012: TL2.34bn, BGC estimate: TL2.64bn), 10-11% EBITDA margin (2021: 9.3%, BGC estimate: 10.9%), and TL110mn capex (BGC estimate: TL114mn). The company plans to invest in the brand in 2013 and plans to elevate marketing expenses by more than 50% to TL100mn. The gross margin is expected to improve slightly due to stabilizing raw material prices, normalized competition and cost cutting efforts. For 2014, 12% EBITDA margin guidance is maintained with the assumption of an improved gross margin with stabilizing commodity prices and increased control on cost base (in parallel to our current estimates).

 

• Sensitivity analysis... Our sensitivity analysis shows that 1pp EBITDA margin improvement after 2014 provides around 6% rise in our 12M target value. On the other hand, 1pp increase above our base case of 9% revenue growth in TL terms gives around 1.5% increase in the target value. We think that it is too early to buy any further margin improvement expectations after 2014 (if any), under current competition, demand, currency and raw material prices outlook.

 

• Main risk factors… Raw material cost pressure, weak TL and competition are the main risks. Operationally, Ulker is affected negatively by weak TL (should be the case in 2Q13). On the other hand, the company has US$68mn short FX position as of 1Q13 (2012: US$96mn, 2011: US$207mn), mostly US$ denominated. The trading volume is limited compared to other mid-large cap stocks.