We initiate our coverage for
Teknosa with an Outperform rating and TL15/share PT. We see Teknosa, which is
the market leader of Turkish technology super store (TSS) chains, as a good
proxy to play on fast growing consumer spending for technology products. In our
view, increasing number of shopping malls will boost store openings of Teknosa
in 2013 and 2014. Separately, anticipated consolidation in the sector and the
management’s expansion plan to enter new markets in the medium term contributes
to our positive stance for Teknosa.
Teknosa may accelerate store openings in
2013 and 2014
Low interest rate environment and sound
consumer spending in Turkey trigger shopping mall investments, which enable
Teknosa to boost its number of stores rapidly. Reportedly, 30 new malls will be
opened in Turkey in 2013 and 15 malls in 2014. With an assumption of 22 new
stores by Teknosa in 2013, we estimate that Teknosa’s sales area will increase
by 28K sqm in 2013 vs. last 5 year average of 17K sqm per annum. Coupled with strong
l-f-l growth (9% in 2013 and 16% in 2014), new stores will contribute to
Teknosa’s top-line growth, in our view. We estimate 20% top-line growth in 2013
and 24% in 2014.
Promising outlook for the sector
With its young and fast growing
population and relatively low penetration for technology products; Turkey
promises compelling growth for consumer spending on technology products.
Considering on-going improvement in purchasing power in Turkey, we estimate
that technology product expenditure will converge towards European average of
EUR360 per capita in the medium to long term from current EUR120 per capita.
Accordingly, we estimate that technology product spending in Turkey will
increase to EUR18bn in 2022 from EUR9bn in 2011 with a CAGR of 10%.
Consolidation may fuel Teknosa’s growth
in the medium term
The concentration ratio (CR2) is
c.60% in Turkey vs. c.90% in West Europe. In our view, Teknosa’s strategic
partnership with Euronics, which is Europe’s largest buying alliance in the
sector, will contribute to Teknosa’s competitiveness and trigger the
consolidation in the Turkish TSS channel in the medium term. Currently, Teknosa
has 42% market share in TSS channel and 15% market share in electronics retail
market. Thanks to its strong balance sheet and market leadership, we see
Teknosa as the potential beneficiary of the anticipated consolidation in the
sector. The company already acquired 3 competitors in the last 7 years.
Currently, Darty reviews its unprofitable Turkey operations for a possible exit
strategy. Any possible acquisition would be an upside risk to our estimate of
17% CAGR for Teknosa’s revenues for the next 5 years.
Robust
growth outlook attaches premium on multiples
Teknosa trades at 23% premium on its 2013E EV/EBITDA
of 8.0x vs. its international peers, mainly because of the much better growth
outlook (we estimate 24% CAGR for Teknosa’s EBITDA for the next 2 years vs.
consensus of 8% CAGR for peers). Meanwhile, our TL15 PT which relies solely on
our DCF valuation indicates 26% return potential. In our DCF valuation, we have
conservative assumptions for LT top-line growth (9% between 2015 and 2023),
EBITDA margin (flat at 4.4% despite anticipated contribution from Euronics deal
and on-going consolidation) and working capital (17 days of cash conversion
cycle in the long term vs. -40 days in 2012). On the other hand, possible risks
to our estimates are any deterioration in consumer sentiment and stiffer than
expected competition which may squeeze margins.
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