Tav Havalimanlari Holding (TAV) (TAVHL.IS)

INVESTMENT LIST MEMBERSHIP: Pan-Europe Buy List COVERAGE VIEW: NEUTRAL

Source of opportunity We increase our estimates for TAV following 1Q results (reported April 30). EBITDA increased 17% yoy, versus our expectation of 8% growth for FY2013. TAV reported passenger growth of 28% in 1Q (19% organic), ahead of our expectation of 18% growth for FY2013 (although we still expect passenger growth to slow in 2H). While results were solid, attention is likely to shift rapidly to the tender for the third Istanbul airport due to take place on Friday, May 3. We reiterate our Buy rating and increase our 12-month price target to TRY16.52 (from TRY15.40). The stock remains on the CEEMEA Focus List. Catalyst The tender for the third Istanbul airport (due May 3), is likely to act as a major catalyst for the stock or present a major risk. Our numbers make no assumptions about the tender (as it would have no material impact on the company’s P&L until at least 2017). We believe that TAV has a good chance of being successful as it is the incumbent for the largest Istanbul (and Turkish) airport. However, we believe value creation will depend on the details of the tender conditions and agreed concession fees. Valuation Our 12-month price target (based on peer-median EV/EBITDA), increases to TRY16.52 (from TRY15.40) as a result of increases to our estimates. Based only on existing concessions, we estimate the current IRR (unlevered) is 12%, with most of the revenue in US$ or EUR, suggesting the valuation is attractive even without winning the bid for the third airport. This is in addition to our expectation of high FCF and dividend potential from 2015. Key risks Losing the tender for the third airport in Istanbul could lead to negative sentiment and act as a negative catalyst for the shares. A slowdown in passenger growth, linked to a weaker economy, would pose a risk.   GOLDMAN SACHS