Aygaz Report

Record gross margin achieved in 4Q15

Aygaz beat both our expectations and the Research Turkey consensus on better than expected operating performance. Its gross margin grew1.9 ppt q-q, achieving a double-digit margin of 11.7% in 4Q15. This was also the highest gross margin on a quarterly basis since 4Q10. Part of the gross margin expansion is simply due to lower LPG/oil prices overall, but this is not the whole story considering the TRY187m gross profit obtained in 4Q15 vs the average of TRY135m per quarter achieved in between 2012 and 2014.

AYGAZ - Unsustainable dividend: BUY

Slightly lower EBITDA forecasts and valuation, TP cut to TRY11.37
We lower our 2013 and 2014 EBITDA estimates by 1% on slightly weaker than expected 4Q12 margins resulting from higher than expected operating expenses. Yet we raise our 2013 net profit estimate 14% on a higher forecast equity contribution from Enerji Yatirimlari, the Tupras SPV, on our recently increased net profit estimates for Tupras.

Much higher than expected dividend for 2013, but unsustainable
Management yesterday decided to propose doubling the dividend for 2013 to TRY300m (9.7% yield), c.200% more than our expectation. We understand management have also decided to use the upcoming two-year TRY150m bond issue for this. Although we like to see Aygaz’s balance sheet getting leveraged, we are surprised given the M&A prospects.