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Turkey’s Top Equity Picks

  Adding PEGASUS The company’s strategy of increasing international flights has had some pressure on load factors but would increase…

Turkey’s Top Equity Picks



The company’s strategy of increasing international flights has had some pressure on load factors but would increase the profitability and decrease the dependence on domestic market. The impact of the stiff competition from Anadolu Jet, low cost carrier subsidiary of THYAO, on the company’s operations would also lessen as a result of this strategy. Besides Pegasus should benefit from the capacity expansion in SAW in the long run. Another supportive factor for the company is its growth performance in ancillary revenues. Share of the ancillary revenues in top line has been continuously rising to reach 24% as of 9M18 from 10% in 2011.


There still seems to be an ample room for further growth as current share of ancillaries are is significantly lower than major low cost carriers in the world. The company’s 4Q18 results yielded positive surprise on the operational front as there was a strong beat on revenues side thanks to the robust yields and ancillary revenues. The stock currently trades at quite attractive 2019E EV/EBITDA of 4.4x and P/E of 4.9x, indicating 26% and 55% discounts to the peer group, respectively.




We expect TRKCM would continue to expand its operations outside Turkey; the share of international sales in company’s total consolidated revenue rose from 41% in FY14 to 59% in FY18. Efficiency initiatives started to show revenue and operational performance boosting effect on the auto-glass segment, with EBITDA increasing from 3.6% in FY17 to 8.1% in FY18. Additionally, the acquisitions of both Manfredonia facility in Italy and HNG glass’ remaining shares of 50% could be complementary parts for the company to create synergy in its international operations. Our target price for TRKCM is TL5.15, implying 30% upside potential. Shares trade at 2019E EV/EBITDA multiple of 4.6x, indicating a 29% discount to peers’ average.


Removing SODA


SODA has outperformed BIST-100 by 14% since its inclusion to our Top Picks on 5th February. We are taking profits at this point given the remaining 13% potential upside is lower than the average upside potential of our Top Picks. We continue to favour SODA’s long-term growth and margin improvement prospects, and maintain our Market Outperform recommendation for the stock.


Removing OTOKAR


We still like long-term prospects of OTKAR but remove the stock from our top picks following its strong performance: 27% in absolute terms and 10% in relative terms since early January. OTKAR now trades at 10.6x/7.5x EV/EBITDA multiples for 2019E-20E, which we find fair with share price also suggesting 5% upside to our TP of TL125/share. Upside risk to our estimates would come from potential new deals for armoured vehicles.


Keeping KOZAL


Koza Gold exceeds our stop loss limit of 15% underperformance. However, the company’s long term prospects and current valuation level do not justify further continuation of such weakness. Therefore we maintain our bullish view for the stock and keep it in our model portfolio. It currently trades at 2.5x 2019E EV/EBITDA multiple, indicating around 53% discount to the peer group. Besides the management’s 2019 production guidance of 300-320k oz points to another strong y/y growth of 14-22%  along with the ongoing strong uptrend in prices of noble metal. Our 2019 production estimate of 303k oz is relatively conservative as it is close to the lower end of the management’s guidance.



Our model portfolio outperformed BIST100 by 4.8% year-to-date.



Y.F. Securities Research


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