Tekfen Holding - You Ain't Seen Nothing Yet
Tekfen Holding beat market expectations across the board in 1Q17 on the back of the surprisingly strong operating profitability of its agricultural arm. We expect this performance to continue into 2Q17, along with an improvement from its construction projects, a larger contribution from high-margin composite fertilizer sales and more deliveries from the Esenyurt real estate project, leading to EBITDA and net income growth of 60% and 82% y-o-y (and 34% and 33% in 1H17). Furthermore, we see profit recognition at five construction projects kicking in during 3Q17, providing an additional boost to the bottom line in 2H17. As a result, we boost our 2017 EBITDA and net income forecasts by 23% and 50%. The stock has risen 65% YTD but is still trading at a 2017E EV/EBITDA of 3.4 and P/E of 5.8. Hence, we keep our BUY recommendation and lift our target price to TRY12.10 per share. We expect upward revisions to the management's 2017 guidance and consensus estimates following the 2Q17 results, due on August 3.Tekfen Holding conducts its operations in four main business segments: Contracting, Agriculture, Real Estate and Other operations. Contracting group focuses on construction of petroleum and gas facilities, land and sea terminals, offshore platforms and tank farms. Agricultural group has operations in chemical fertilizer, ground and vegetable grain, production, distribution and trade of seedling and sapling. Real estate group operates in designing, constructing, renting, and sale of real estates such as residents, offices, shopping centers and hotels. Operations of other segment comprise of light-pulp trading, cotton yarn production and trading, insurance services and holding operations.
Sberbank CIB Investment Research is a research firm offering equity, fixed income, economics, and strategy research. It covers analysis on all aspects of Russia’s capital markets, issues and industries. The firm analyzes trends in Russia and combines local knowledge with a global perspective. It processes macroeconomic data, market and company-specific news, stock quotes and other information for providing research reports. The firm provides details and latest prices on the most traded names and most traded paper on all segments Russian market. In strategy research, it provides thematic research, tips and descriptions of the methodology used to evaluate companies.
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