BGC Partners: Glass Sector - Initiation of Coverage / SISE: SELL - TRKCM: BUY - ANACM: HOLD - SODA: BUY

Glass Sector - Initiation of Coverage / SISE: SELL - TRKCM: BUY - ANACM: HOLD - SODA: BUY

2012 will be tough, but negatives are priced in

·    SISECAM... Having outperformed the ISE-100 index by 47% y/y, the company is now trading at 10% premium to its target NAV. We think that the stock is trading above its fair value since our target share price of TL3.07 derived from SOTP analysis points to 6% downside potential. Therefore, we are initiating Sisecam’s coverage with a “SELL” rating.

·    TRAKYA CAM...  Trakya Cam has underperformed ISE-100 by 15% in the last 6 months on the back of the slowdown in the construction sector and rising energy costs. However, we believe that concerns are overblown and have already been priced in.  Through its JV with Saint Gobain, Trakya Cam will build a new float line and auto-glass facility in Russia; in the long run, we believe that this investment will create value for the company on the back of strong construction and auto demand in Russia. Our DCF valuation points to a target price of TL3.19 which suggests an upside potential of 21%. We like Trakya Cam’s attractive valuation, its dominant position in the domestic market and growth prospects in Russia; we are initiating the coverage with a “BUY” rating.

·    ANADOLU CAM...  Anadolu Cam will increase its capacity by 15% till 2013; we are projecting 9% top line growth in 2012 and 14% in 2013. Thanks to the resilient nature of the beverage and food sectors and together with its geographically diversified revenue structure (c43% via exports) we think that the company is well protected against downturns. However, regulatory issues in the Russian beer market (85% share in sales) pose risk in the short term for overseas sales and also we see top-line growth beyond 2014 is problematic due to domestic competition. Our valuation offers an upside potential of 13%, therefore we are initiating the coverage with a “HOLD” rating.

·    SODA SANAYI... Soda is selling all of its products in US$ terms and half of the revenues are generated from overseas operations thus the company is immune to risks related to domestic macro environment. For this reason, Soda outperformed the market by 87% in 2011 where the currency basket had depreciated by 21% (from TL1.8 to TL2.16). According to 3Q2011 results, the company reached an EBITDA margin of 25%; however, the energy costs, which comprise 50% of total COGS, should hurt margins. We estimate the EBITDA margin to narrow by 6pps and reach 19%.

     The competition will intensify because of the upcoming capacity increase of Park Group which is producing the soda ash at a lower price, but the effect should be limited, in our view. Soda is cheap in terms of market multiples; 2012EV/EBITDA which is calculated from US$ earnings figures stands at 4.8x that represents a 27% discount to its global peers’ median figure of 6.6x. We initiate the coverage with a “BUY” rating our bottom-up analysis points to a target price of TL3.96 which offers a 26% upside from yesterday’s closing.