Tupras (TUPRS TI) - Unfavourable risk/reward profile: Maintain Hold
Unfavourable risk/reward profile
Based on containment measures related to the Covid-19 pandemic and updated macro, we reduce our SoTP-based TP by 25% to TRY86.91 and maintain our HOLD rating. We expect mediocre cash generation to prevail for the next two quarters due to the weak petroleum demand outlook. Despite expecting a solid recovery by 2021, we find the upside potential to be unattractive, as the stock trades at 11.1x and 5.4x 2020/21E EV/EBITDA, implying 64/15% premium to its European peers. Based on current cash generation outlook, we expect Tupras to be a muted dividend payer (2020/21E yield: 0/5%) for the upcoming years compared to its 10-year dividend yield average of 8%.
Tupras posted net loss of TRY2.3b in 1Q20, slightly better than BNPPe of loss of TRY2.5b, but in-line with Research Turkey loss consensus of TRY2.2b. Despite lower than expected inventory losses, the bottom-line was boosted by TRY551m deferred tax gain (vs BNPPe: TRY350m) in 1Q20. EBITDA of -TRY1.2b was better than our estimate of -TRY1.6b (vs RT consensus of -TRY1.2.b), based on lower than expected inventory losses. In 1Q20, the company booked TRY2b inventory losses (vs BNPPe: TRY2.5b loss).
Turkiye Petrol Rafinerileri is an energy and refining company based in Turkey. Co. is engaged in providing and refining crude oil, the importing and exporting of oil products, and establishing and operating refineries in Turkey and foreign countries. Also, Co. is establishing and operating factories and facilities in the petrochemical industry. Co. is engaged in purchasing, selling, importing, exporting, storing, marketing and distributing (wholesale, retail, foreign and domestic) all kinds of petroleum products, LPG and natural gas. Co. runs its business through the refineries in Izmit, Izmir, Kirikkale and Batman.
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.
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