Turk Traktor (TTRAK TI) - Valuation too attractive to ignore: Maintain Buy
We reiterate our positive view on Turk Traktor, on the back of increasing government support for the agriculture sector in Turkey, expected recovery in financials in 2H18 and its compelling valuation. After underperforming the ISE National 100 by 27% (including dividend) in the past 12 months due to weakness in profitability, the stock is now trading at 6.8x 2018E EV/EBITDA, a 48% discount to international peers and 9.7x 2018E P/E, a 41% discount to international peers.
We estimate that the recovery in EBITDA margin will start by 3Q18, on the back of the 28% cumulative price hike over the past 1.5 years. Our estimates indicate 9% y-y growth in EBITDA in 2018 and 27% in 2019.
We cut our DCF-based 12-month TP by c.10% to TRY77, due to a higher RfR assumption of 14.25% (12.25% before).Yet, our TP implies a lucrative return potential. Thus we maintain BUY.
Turk Traktor Ve Ziraat Makineleri is engaged in the manufacturing of agricultural machinery, such as tractors, harvesting machinery and earth moving machinery, and its allied parts, including gearboxes, transmission boxes, engine blocks, cylinder heads and hydraulic lifters. Co. sells New Holland and Case IH branded vehicles and equipments. Co. exports its products to over 50 countries.
TEB Investment equity research analysts and strategist team consists of 8 analysts with an average finance sector experience of 15 years and special focus on international investors.
With our 6 equity research analysts we cover 93 companies across 21 sectors, reflecting 80% of the total market capitalization of all BIST companies and 86% of the BIST100 companies. Our strategy team provides in depth top-down and bottom-up market views with insight on FX and bond markets by publishing sectoral and strategic reports both in English and Turkish.
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