Upgrade to HOLD on share
performance and TP revision
Arcelik’s share price underperformed the XU100 7.1% since its 3Q12 earnings release Nov 1. We believe shares are now fairly valued. We upgrade our rating to HOLD from Reduce. Domestic durables demand should benefit from lower interest rates, albeit mostly indirectly via the housing market.
2012 margin guidance miss risk in the price
We continue to believe that Arcelik might miss its EBITDA margin guidance of 10.5% for 2012 (our estimate 10.1%). The company also highlighted some downside risk to guidance. However, following the underperformance since the earnings release, we believe the share price mostly reflects that risk
We revise our 12-m target price to TRY11.0 on lower COE
We have increased our 12-m target price from TRY10.36/share to TRY TRY11.0 mostly reflecting our lower risk free rate assumption (from 8.5% to 8.0%). The key upside risk is inorganic growth that would create shareholder value. The key downside risk is lower normalized EBITDA margins than our assumption (our estimate: 11%).
FCF generation in 2013 should improve
Arcelik’s market share gains in Europe turned out to be sustainable and we believe there is prospect of further market share gains via increased penetration in Southern Europe. We expect an improvement in FCF generation in 2013, amid an easing in revenue growth leading to a lower working capital increase compared to 2012. Moreover, the relatively leveraged position of Arcelik (net debt of TRY2.5b as of Sep-12) is not a concern anymore thanks to abundant financing. We believe Arcelik has the prospect of issuing corporate bonds (like its sister companies Koc Fiat Kredi and Tupras), which might reduce the funding costs further (at least slightly), and diversify the funding sources.
Arcelik’s share price underperformed the XU100 7.1% since its 3Q12 earnings release Nov 1. We believe shares are now fairly valued. We upgrade our rating to HOLD from Reduce. Domestic durables demand should benefit from lower interest rates, albeit mostly indirectly via the housing market.
2012 margin guidance miss risk in the price
We continue to believe that Arcelik might miss its EBITDA margin guidance of 10.5% for 2012 (our estimate 10.1%). The company also highlighted some downside risk to guidance. However, following the underperformance since the earnings release, we believe the share price mostly reflects that risk
We revise our 12-m target price to TRY11.0 on lower COE
We have increased our 12-m target price from TRY10.36/share to TRY TRY11.0 mostly reflecting our lower risk free rate assumption (from 8.5% to 8.0%). The key upside risk is inorganic growth that would create shareholder value. The key downside risk is lower normalized EBITDA margins than our assumption (our estimate: 11%).
FCF generation in 2013 should improve
Arcelik’s market share gains in Europe turned out to be sustainable and we believe there is prospect of further market share gains via increased penetration in Southern Europe. We expect an improvement in FCF generation in 2013, amid an easing in revenue growth leading to a lower working capital increase compared to 2012. Moreover, the relatively leveraged position of Arcelik (net debt of TRY2.5b as of Sep-12) is not a concern anymore thanks to abundant financing. We believe Arcelik has the prospect of issuing corporate bonds (like its sister companies Koc Fiat Kredi and Tupras), which might reduce the funding costs further (at least slightly), and diversify the funding sources.
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