Aselsan: Time to return to base (downgraded to HOLD)
Post its 1Q20 earnings beat and considering the 13% weaker TRY vs. the USD ytd, we have revisited our valuation model for defence contractor Aselsan and revised our earnings estimates. The main driver of our 2020-21E earnings changes are the higher average USD/TRY rate (given Aselsan’s predominantly FX revenue stream) and the higher operating margins, in addition to decelerating new contract awards after the very strong FY18-19, when the company secured USD 7bn of new projects. Following our model revisions, our 2020E/21E group revenue forecasts for Aselsan are 16/22% higher in TRY terms, while our EBITDA estimates are up by 27/33% for the same period and our NI estimates are 17%/28% higher vs. our previous forecasts. Our blended valuation methodology (60% DCF/40% target 2021E multiples driven) now suggests an 18% higher 12-month price target (PT) of TRY 33.43/share, which offers 5% potential upside. On our revised 2020E numbers, the stock trades at 9x EV/EBITDA and 8.7x P/E, at a c.30% discount to its pure defence electronics peers. While the stock’s comparative valuation vs. its international peers is not stretched, following its stellar price performance, it has lost its attraction from a catalyst outlook and a risk-reward profile perspective. We downgrade our rating to HOLD.
WOOD & Company is the leading investment bank in Emerging Europe. Founded in 1991 and head-quartered in Prague, our footprint spans the region and touches investors around the globe.
A pioneer in Emerging Europe, WOOD executed many of the first CEE equity trades and landmark investment banking transactions. Our electronic trading platform was the first in the region, and remains the best. We are continually expanding our relevance and reach in these ever-evolving markets.
Our equity market share reflects our stature: 7% in Warsaw, 20% in Bucharest, 16% in Hungary, 40% in Prague and 5% in Vienna. Our distribution is unparalleled, with the largest salesforce in the region, servicing a uniquely diverse investor base.
We couple local expertise with a truly international perspective. With offices on the ground in the region, and in key financial hubs such as London and Milano, we are never far from our clients and we remain at the forefront of what’s afoot in the CEE emerging and frontier landscape.
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