Volume growth remained strong in 3Q12
In 3Q12, the company posted TRY42m in net income, above our net income estimate of TRY24m and consensus estimate of TRY28m, due to higher than expected operating performance, fx gains and other income. EBITDA came in at TRY52m, above ours and consensus estimates of TRY41m on strong growth in unit sales across all categories.
Improved profitability thanks to synergies in distribution operation
Despite seasonally weak high margin chocolate confectionary sales, profitability remained decent on volume growth across all categories. New merchandising strategy and low prices of cacao and flour, which account for roughly 20% of total production costs, also helped profitability.
Raising our TP on better than expected earnings growth
We raise our net income and EBITDA estimates by 11% and 44% for 2012 and by 5% and 5% for 2013. Downside risks to our estimates include execution risk of the new strategy, commodity prices and TRY weakness. Low commodity prices pose an upside risk.
Valuation is stretched
We maintain our HOLD rating on the company, which trades on 16.6x P/E and 12.1x EV/EBITDA on 2013 estimates. In our view, most of the potential improvement in operating performance has been discounted in the stock price. We derive our TP using a blended valuation, assigning 50:50 weights to DCF and peer comparable valuations. Higher earnings estimates lead to an 8% increase in our valuation.
In 3Q12, the company posted TRY42m in net income, above our net income estimate of TRY24m and consensus estimate of TRY28m, due to higher than expected operating performance, fx gains and other income. EBITDA came in at TRY52m, above ours and consensus estimates of TRY41m on strong growth in unit sales across all categories.
Improved profitability thanks to synergies in distribution operation
Despite seasonally weak high margin chocolate confectionary sales, profitability remained decent on volume growth across all categories. New merchandising strategy and low prices of cacao and flour, which account for roughly 20% of total production costs, also helped profitability.
Raising our TP on better than expected earnings growth
We raise our net income and EBITDA estimates by 11% and 44% for 2012 and by 5% and 5% for 2013. Downside risks to our estimates include execution risk of the new strategy, commodity prices and TRY weakness. Low commodity prices pose an upside risk.
Valuation is stretched
We maintain our HOLD rating on the company, which trades on 16.6x P/E and 12.1x EV/EBITDA on 2013 estimates. In our view, most of the potential improvement in operating performance has been discounted in the stock price. We derive our TP using a blended valuation, assigning 50:50 weights to DCF and peer comparable valuations. Higher earnings estimates lead to an 8% increase in our valuation.
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