Net Holding - Betting on Value
We initiate coverage of Net Holding with a target price of TRY2.88 per share and a BUY recommendation. Our target price suggests upside of 56%, which represents an attractive entry point in light of the combination of robust profitability and the attractive growth story, which is focused on the hotel and casino business in Northern Cyprus and the Balkans. We believe Net Holding's investment case has become more alluring following the merger with its subsidiary Net Turizm in mid-October, as the transaction eliminated a cross-holding and simplified the corporate structure. In dollar terms, the stock is trading at an EV/EBITDA of 4.7 for 2017E and 3.9 for 2018E, for respective discounts of 51% and 54% against international peers. However, we apply a 30% discount to our peer multiple valuation to account for the political situation in Northern Cyprus, the lack of regular dividend payments and the holding structure.Net Holding Anonim Sirketi. Net Holding AS is a Turkey-based holding company active in the tourism sector with duty-free store management, hotel management, real estate development and other touristic services. The Company's activities include the management of cafes, casinos, duty-free shops and book stores, publishing books for tourists and children, limousine services, and the operation of gift and souvenir shops under the Bazaar54 brand name. It maintains its activities in the hotel management and entertainment sectors in Turkey and abroad. The Company's hotels are Merit Halki Palace, Merit Sahmaran and Merit Crystal Cover Hotel & Casino, among others. As of March 30, 2012, the Company's subsidiaries included Gokova Turizm Tic. ve San. A.S, Loytas Laleli Otelcilik Yatirim Tur. ve Tic. A.S and Netel Net Otelcilik Yatirim ve Isl. A.S., among others.
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