What's
changed
We remove
Tofas from the CEEMEA Focus List following outperformance. Since July 1, 2012
Tofas shares have gained 74% (in USD terms), outperforming the MSCI EM EMEA
Index by 68%, leaving upside potential to our 12-month price target below
that of Q1 upside within the CEEMEA space. Over the last 12 months, the stock
is up 73%, outperforming the MSCI EM EMEA Index by 83%. Our new 12-month
price target is YTL16.1 (from YTL15.9), implying potential upside of 20%.
Implications
While the
potential upside to our price target is now more limited following the stock
re-rating on the economy accelerating, we maintain our constructive view. We
believe that the company will continue to benefit from stable profitability
provided by the ‘pay’ side of the take or pay agreements on its exports
volumes despite sluggish demand in Europe, with EBITDA margins remaining
above peers in the next 2 years. In a recovering domestic market, we expect
Tofas to be a beneficiary with volume growth of 8%/13% in 2013/14. Our new
2013/14 EBITDA estimates increase 1%/4%.
Valuation
Rolling
forward the mid-cycle multiple to the median of 2008-12, we now value Tofas
on a target EV/EBITDA multiple of 7.6x, a 40% premium to its mid-cycle
multiple of 5.3x to reflect the company’s CROCI moving into Q1 relative to
our Turkish coverage as well and Turkey’s investment grade rating (which we
apply across our Turkish coverage).. Our new 12-month price target is YTL16.1
which implies 20% potential upside.
Key
risks
Key risks to
our view are: (1) lower GDP growth in Turkey, (2) increase in the Turkish
government’s special consumption tax on autos, (3) increase in domestic
interest rates (with 70% of autos in Turkey bought on credit), (4) loss of
market share on intensifying competition.
Goldman Sachs
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