Turk Telekom: More resilient to FX headwinds, reiterate BUY
Ahead of Turk Telekom’s (TT) 3Q20E results, we have revised our valuation model, updated our earnings estimates and reiterate our BUY rating, with a new 12M price target (PT) of TRY 10.01/share. Having executed its new integrated business strategy well since 2018 (based on brand unification, a penetration push in wireline broadband and cross-selling/market share gains in the mobile/TV segments), it has emerged as a net beneficiary of strong wireline broadband (BB) demand during the COVID-19 pandemic and, despite headwinds faced by its mobile business during the pandemic, delivered a strong beat in its 2Q20 results, driven by residential BB and corporate data. We believe 3Q20E should be similarly strong and may trigger a guidance upgrade. Although TT’s strong FCF generation capacity (+108% in FY19) is well-recognised by the market, we believe the significant improvement in its earnings resilience to FX shocks (lower gearing, better hedging) is still not as well understood. In our view, TT’s reinforced FX resilience and the restoration of its cash dividend payments in July (after a four year pause) is a good reason for a rerating, given that it should remain bottom-line positive on our 2020E estimates, despite 32% TRY depreciation ytd.Turk Telekomuniksayon is an integrated telecommunications company in Turkey. Co.'s principal activities include the provision of local, national, international and mobile telecommunication services, internet products and services, as well as call centre and customer relationship management, technology and information management. Co. has service network and product range in the fields of individual and corporate services. Co. provides services in all 81 cities of Turkey. Co. has two main segments; fixed line and mobile. As of Dec 31 2015, Co. had 12.9 million fixed access lines, 8.0 million broadband and 17.3 million mobile subscribers.
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