Brisa: Deleveraging, pandemic yields (dividend) fruit (downgraded to HOLD)

On the back of our updated estimates, we have increased our price target (PT) for Brisa to TRY 24.2/share, and downgraded our rating to HOLD (from Buy). The stock was among the pandemic winners and continues to benefit from pent-up demand. Altogether, we now see 2021E volume sales of 201kt (c.13.4m units) – c.15% higher than we assumed at the start of the pandemic and c.15% higher vs. 2020 – translating into higher capacity utilisation and profitability, lower input costs notwithstanding. After the stock’s recent correction, it trades at a c.10% EV/EBITDA discount vs. its global peers. Brisa’s investments in customer reach and services should continue to return solid domestic pricing power, more than absorbing the TRY weakness, in our view. Moving forward, as both demand and raw material prices normalise, we assume some EBITDA margin contraction, particularly in 2022E, albeit remaining above the 20% level. The focus is likely to return now to dividends, with management having done the hard work of reining in the working capital and deleveraging. We assume 50-60% payouts from the 2021E earnings and onwards, subject to investments, primarily a 2.0mt capacity expansion starting in 2023E, or c.75% of FCF over the next capex cycle.