Key points
We foresee sales volume recovery in key product groups this year but a tougher pricing environment in main markets
◆ In the broader context, investment story is linked to rate cuts globally and an upturn in the Chinese housing market
◆ Retain Hold given mixed outlook. Switch to IAS29 forecasts and pure DCF valuation, increase TP to TRY55 from TRY53
Mixed outlook
Quarterly trends within 2023 suggest that Sisecam might have entered 2024 with some recovery in sales volumes across different product groups, with probably the exception of architectural glass. Demand was weak throughout last year, particularly in H1 and this year volumes should benefit from the base effect.
The earthquake in Southern Türkiye in February 2023 hurt architectural glass sales in particular but reconstruction activity in the region should support sales from 2024.
Main international markets (e.g. Europe) and exports from Türkiye (which together account for c60% of group revenues), on the other hand, see pressure from slowing construction activity and excess supply situation. While we expect 2024 to see volume recovery for Sisecam’s main products, we expect an offset for revenues from weaker pricing (including sales mix and currency). Currency alone (weaker TRY) had supported revenues notably last year which seems not to be the case so far in 2024.
Positives vs negatives
We see scope for some operating margin recovery this year despite high cost inflation in Türkiye (c40% of group revenues) and despite stable TRY pressure on exports from Türkiye (c20% of group revenues). Such recovery should be enabled by the weak performance of 2023 (base effect) and slightly better capacity utilisation given improved production and sales volume growth. One positive has been stable energy (natural gas and electricity) tariffs in Türkiye since October 2023. Energy accounts for c45% of total COGS but we also note the risk of some tariff hikes in 2H24 (if and when policymakers feel more comfortable about inflation pass-through of such adjustments).
Citi, BofA analysts offered upbeat assessments on Turkish markets
On the balance sheet front, cUSD1.5bn raised from recent Eurobond transactions provides comfort for funding needed to fulfil short-term loans, working capital requirements and capital expenditures.
Too early for a bullish stance
Overall, given Sisecam’s widespread international exposure and diversified end markets that consume its products, we believe that a more bullish investment view rests on global rate cuts (as well as in Türkiye) and a more stable real estate market in China, the single largest producer of soda ash and consumer of glass products. We believe that it is early yet to assume such scenario.
Raise TP to TRY55, retain Hold
We switch to estimates under inflation accounting (IAS29) standards and revise our valuation approach as pure DCF (USD based) from a mix of DCF and peer comparison previously (IAS29 distorts multiple-based peer group comparisons in our view). Our DCF model yields a new target price of TRY55 (from TRY53) and we retain our Hold rating based on the 1.5% implied upside.
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