Erdemir (EREGL TI) - Operationally in-line: Maintain Buy
Erdemir’s 4Q19 net income of TRY228m missed both our and the RT consensus estimates. While operational performance met our estimates, a significantly higher-than-expected effective tax rate of 54% (vs. BNPPe: 30%) wiped out the bottom-line growth in 4Q19. Operationally, while EBITDA of TRY701m came in-line with our estimate, it stood lower than RT consensus. On high iron ore prices and weak flat steel pricing, EBITDA/t declined by 50% q-q to USD59/t (USD184/t in 4Q18), which was in-line with our estimate of USD62/t.
We maintain a BUY on Erdemir as we expect a strong operational turnaround by 1Q20, supported by higher steel-making margins. We believe that any potential concerns about a NI miss will only provide a buying opportunity. Also, our dividend yield forecast of 9% provides substantial cushion for the stock if/when it becomes off risk in EM/Turkey. At current levels, the stock trades at 4.1x 2020E EV/EBITDA, which is at a 33% discount to its EM 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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