Weak performance by
international & Turkish brewery operations
In 3Q12, Anadolu Efes posted TRY246m net income, much lower than our and consensus estimates of TRY265m and TRY270m on weak operating performance of both international and Turkish operations. Posted EBITDA (TRY416m) was below our and consensus estimates (TRY447m). Decline in unit sales in Russia was much higher than our expectation.
A 13% y-y decline in unit sales of international operations
Weakness in international volumes stemmed from weak unit sales in Russia which was due to low stock levels in distributors, low in-store activity, prolonged negotiations with some key accounts and loss of a brand with a 0.5% market share. In Turkish operation high marketing expenses continued to hurt profitability.
TP unchanged despite weak performance
Our TP is based on a sum-of-the-parts asset valuation using peers and DCF. The Company’s peer multiples, both beverage and beer, expanded 10% in last six months while our DCF valuation also increased due to low cost of debt. However, we cut our revenue, EBITDA and net income forecasts due to ongoing weakness in performance in Russia and Turkey.
In 3Q12, Anadolu Efes posted TRY246m net income, much lower than our and consensus estimates of TRY265m and TRY270m on weak operating performance of both international and Turkish operations. Posted EBITDA (TRY416m) was below our and consensus estimates (TRY447m). Decline in unit sales in Russia was much higher than our expectation.
A 13% y-y decline in unit sales of international operations
Weakness in international volumes stemmed from weak unit sales in Russia which was due to low stock levels in distributors, low in-store activity, prolonged negotiations with some key accounts and loss of a brand with a 0.5% market share. In Turkish operation high marketing expenses continued to hurt profitability.
TP unchanged despite weak performance
Our TP is based on a sum-of-the-parts asset valuation using peers and DCF. The Company’s peer multiples, both beverage and beer, expanded 10% in last six months while our DCF valuation also increased due to low cost of debt. However, we cut our revenue, EBITDA and net income forecasts due to ongoing weakness in performance in Russia and Turkey.
Cut our estimates yet still downside risks in Russia and Turkey
We cut unit sales estimates for international and Turkish operations 3% and 2% for 2013/14. We cut EBITDA/net income estimates 5% and 9% for 2013/14 on weak volumes and slight decline in profitability. Competitive forces increased in Russia as recovery in consumption remained weak. Sharp increase in excise taxes/likelihood of further hikes should hurt beer consumption in Turkey in 2013/14. Moreover, the company lost market share to the competition in both Turkey and Russia to sustain its profit margins. The Russian government’s ban on beer sales at kiosks and train stations from 2013 should have a further adverse impact, as kiosks and train stations account for around 15% of total beer sales.
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