Erdemir (EREGL TI) - Resilient profitability in 1Q19: Maintain Buy
Erdemir reported net income of TRY997m in 1Q19, in-line with our estimate of TRY980m and the RT consensus of TRY957m. Operationally, 1Q19 EBITDA of TRY1.7b came 10% higher than our estimate of TRY1.55b and 9% better than the consensus of TRY1.56b. The reason behind relatively less-impressive NI generation was attributable to higher effective tax rate of 39% (vs. our estimate of 28%) in 1Q19.
We increase our EBITDA/NI estimates by 14%/18% for 2019 on better profitability and updated macro forecasts. We believe that Erdemir defied the sector negativities backed by solid export shipments. Despite near term cost pressures due to higher iron ore prices, current levels are very attractive as it trades at 4.1x 2019E EV/EBITDA multiple, implying a 22% discount to emerging peers. Meanwhile, appealing dividend yield of 12.5% from 2018 profit is providing a substantial cushion for the stock if/when investors become off risk in EM stocks and/or Turkey.
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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