BGC Partners - BOYNER (Company Update - BUY (maintained), 76% upside)

Recommendation: BUY (maintained)

 

Turnaround with YKM: TP raised to TL8.30

 

·         YKM acquisition… Boyner Magazacilik bought 63% of YKM for TL176.7mn on 7 September 2012. With the acquisition, Boyner hits 143 stores and 247.8k m2 sales area at 3Q12-end vs. 72 stores and 136.1k m2 sales area at 1H12-end before the acquisition.

 

·         … will bring huge synergies… YKM acquisition will expand Boyner’s geographical reach, provide significant synergies (cost cutting via elimination of duplicate entities) and improving economies of scale (majority of the goods are sourced from same suppliers), bring greater bargaining power against shopping mall operators and sizeable savings at general expenses (headquarters personnel have been reduced). We estimate the combined entity to close 2012 with a 4.8% EBITDA margin assuming that 4Q12 may be weak due to higher costs on downsizing the personnel and one-off expenses related with the acquisition of YKM. However, we will see the full YKM impact and applied synergies in 2013, and expect EBITDA margin to hit 7.5%. In the following years, our long term EBITDA margin forecast is 8.5% for the combined entity; but Boyner guides that around 2-3pp additional rise in the EBITDA margin in the long run is easily attainable.

 

·         Growth will continue… The company guides that in 2013, they plan to add 24k m2 new sales area (already contracted), but the net addition should be around 17k m2 as some inefficient stores will be closed down and some stores will be renovated. In the following years, the company thinks that 20-30k m2 sales area expansion per year is within targets (we estimate 18k m2 per year between 2013 and 2017 and 11k m2 after 2017).

 

·         BUY maintained with 76% upside… Boyner is a significant growth and turnaround story in non-food retail business with possible margin improvement via YKM impact, maturing of newly opened stores, increasing share of private label products and strict cost control. We elevate our former 12M TP of TL5.4 per share (solo) dramatically to TL8.30 per share (for the combined entity), reiterating our BUY rating. The stock trades at 2013E EV/EBITDA of 6.6x (2014E: 5.2x), P/E of 9.8x (2014E: 7.8x) and EV/Sales of 0.5x (2014E: 0.4x).

 

bgc partners