Adding SODA to our Top Picks- Our target price for the stock is TL8.75, pointing to 34% upside potential.
We think the recent share price weakness provides an attractive entry point, as i) strong financial 4Q18 results announced last week confirmed our positive views on growth and operational profitability, ii) management kept 2019 guidance unchanged in yesterday’s results conference call, iii) stability in soda ash prices, which sit in contrast with the appealing valuation multiples and deep discount to peers.
Closing the year with a net income of TL1.6bn in 12M18 (vs TL0.7bn in 2017) and an EBITDA margin of 27.9% (vs 25.1% in 12M17), SODA’s financial results were boosted with a single digit increase in sales volumes of both soda and chromium chemical segments. Additional rise in unit prices of both segments due to temporary closures in China (for soda) and capacity closure of Lanxess (for chromium) helped company’s profitability.
SODA trades at 2019E EV/EBITDA multiple of 3.6x, indicating a 48% discount to peers’ average. 2019E 5.0.x P/E, points to 51% discount versus its peers.
While the market may see recent TL appreciation as a downside risk to SODA’s profitability, we think the potential upside risk to our valuation stemming from the 17% risk free rate used in our DCF based valuation should alleviate these concerns.
ASELS is removed from our Top Picks
Underperformance of the shares by 16% has triggered our model portfolio’s stop-loss mechanism of -15% relative performance. Our TL590m 4Q18 net income estimate is 13% below TL681m market consensus on higher FX losses (while our EBITDA estimate of TL777mn is parallel with the market consensus). We maintain our Market Perform rating based on 23% potential upside to our TL30 target price, with expected big-sized defence contract announcements being the key catalyst.
Excerpt from Yatırım Finansman strategy report