Erdemir (EREGL TI) - A bumpy road ahead: Maintain Buy
Erdemir’s 2Q19 net income of TRY1.31b was roughly in line with our estimate of TRY1.25b and RT consensus of TRY1.20b. Operationally, 2Q19 EBITDA of TRY1.7b came in line with our estimate and RT consensus of TRY1.7b. After the robust 2Q19 results, we see significant headwinds on steel making margins due to higher iron ore and unsupportive steel prices.
We lower our 12M TP (based on weighted average DCF and international peer multiple, assumptions unchanged) by 15% to TRY10.61 on lower profitability related to higher iron ore prices and updated macro forecasts. Even though we think there is significant upside potential from the stock’s current levels, investor interest should be limited, in our view, as steel making margins look discouraging for the rest of the year. The stock trades at 3.6x 2019E EV/EBITDA, implying a 31% discount to emerging peers.
Eregli Demir Ve Celik Fabrikalari is engaged in the production of iron and steel rolled products, alloyed and non-alloyed iron, steel and pig iron castings, cast and pressed products, coke and their by-products.
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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