Erdemir (EREGL TI) - Boosted by lower raw material costs: Maintain Buy
Backed by updated macro and higher sales volume forecasts, we raise our 12M TP (based on weighted average of DCF and international peer multiples, assumptions unchanged) by 31% to TRY15.84. Supported by higher steel product prices, we expect steel making margins to remain healthy. We keep our positive stance on Erdemir as it offers an appealing risk/reward profile, given its strong balance sheet and hard currency dominated cash generation.
Erdemir reported net profit of TRY582m in 3Q20, marginally higher than BNPPe of TRY563m and the RT consensus of TRY572m. While operational performance beat than our estimates, a significantly higher-than-expected effective tax rate of 60% (vs BNPPe of 45%) wiped out the net profit growth. 3Q20 EBITDA of TRY1.6b came slightly higher than BNPPe of TRY1.4b and RT consensus of TRY1.5b. Aided by decline in raw material prices and better product mix, EBITDA per unit was up by 4% q-q to USD101/tonne in 3Q20 (vs USD117/tonne in 3Q19), higher than BNPPe of USD87/tonne.
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.
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