Erdemir (EREGL TI) - No sign of a recovery: Maintain Buy
Erdemir’s 3Q19 NI of TRY784m was slightly higher than BNPPe of TRY728m and the RT consensus of TRY738m. The bottom-line was supported by a slightly higher operating margin and a lower effective tax rate of 14.6% (vs. BNPPe: 22%). Operationally, 3Q19 EBITDA of TRY1.3b came roughly in-line with BNPPe and the RT consensus of TRY1.2b.
We lower our 12M TP by 7% to TRY9.88 on lower profitability related to weaker steel prices and updated macro forecasts. Even though Erdemir’s TP suggests an appealing upside potential, we believe that the interest should be limited in the near term as steel making margins look discouraging at least for the next two quarters. The stock trades at 3.9x 2019E EV/EBITDA multiple, implying a 32% discount to its emerging market 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.
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