Equity top picks

00:318 January 2019
Equity top picks

One of Turkey’s premier investment houses, catering to IFI, Yatirim Finansman updated its recommended 2019 equity portfolio. We present the new choices by its research team:


KOZAL is added to our top-picks


The company (Gold mining-processing) has recently become a true turnaround story on two main factors;

  • After a consecutive decline in production during 2014-2017 (from 350k oz to 205k oz) on legal and technical issues production has ramped up this year as major problems are resolved for operational mines – we expect production to post 22% CAGR in 2018-19 to reach 300k oz and stay there until 2023, this translates into 41% CAGR in EBITDA and NI for the next three years.
  • After a silence period between 2H15-1H18 the company restarted to release financial and operational data, improving the corporate governance and unearthed the long-buried attractive story of Koza Gold.


The stock outperformed BIST-100 by 65% in 2018 but compared to the peer group KOZAL still trades at an unwarranted 45% and 65% on 2019E EV/EBITDA and P/E multiples, respectively. Besides the company has quite strong financials owing to its TL2.5bn net cash position, which corresponds to 33% of the current market value. Moreover the company’s sales are in almost fully in hard currency and 60% of cash costs are in local currency, which makes operations quite immune to domestic volatilities.

OTKAR is another addition on improved prospects


Otokar (specialty-military automotive) trades at around one-third of its peak Mcap in USD terms (seen in 2013) as a result of market disappointment following the loss of Altay tank production tender and TRY depreciation. We think current valuation represents an opportunity because there are still prospective deals for Otokar, mostly outside Turkey, with similar potential and with likely higher margins – based on our estimate.

We expect growth to come from exports, expecting export revenues to account for 75% of total sales over 2018-2022 compared to the average of 24% in the past 5 years. In nominal terms, we expect exports of $520mn in 2022E ($350mn in defense + $170mn in non-defense) up from $150mn in 2017 ($54mn in defense + $95mn in non-defense).

Otokar formed a JV with UAE’s state-owned Tawazun and the JV won $661mn contract in 2017 for 8×8 armored vehicles to be delivered to UAE Armed Forces. We think the JV could see more orders from UAE, which have $25bn annual defense spending budget (based on SIPRI database).

Otokar’s 9M’18 results were weak but we expect Otokar to post TL82mn net profit in FY’18 (from TL-86mn loss in 9M’18) thanks to the increase in high-margin armored vehicle sales. It is also worth noting that Otokar may collect most of remaining receivables related to Altay R&D contract, which would lower leverage ratio significantly.


EREGL is removed on cloudy outlook


Although EREGL (flat steel) would remain defensive pick within Turkish universe, risks around the global growth outlook create uncertainties about its earnings outlook. Steel making spreads have peaked at around $220/ton as of Q3’18 and we expect this to be less than $150/ton in 2019E, which may result in ~45% drop in EBITDA generation in USD terms. This would put 2019E EV/EBITDA multiple at around 5x, broadly in line with the long term averages.




Modified Time: 00:318 January 2019
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