Sisecam: Mine behind the glass

We are transferring our coverage of Sisecam with an Outperform rating and 12- month TP of TRY45.00/share (previously TRY26.50), offering 38% upside potential. In 1H22, Sisecam reported a solid operational performance thanks to favorable pricing environment and rising sales volumes with impressive gains in both the top-line (215% YoY) and EBITDA (217% YoY). Although Sisecam is near to experience some normalization in its EBITDA margin level from its historical high levels, we expect the company to maintain its solid EBITDA growth in the cumulative terms, backed by continued pricing strength in all segments and full contribution of soda ash segment capacity increase-
implying a potential 160% YoY EBITDA growth in 2H22. For 2023, We calculate

29% YoY EBITDA growth, we see the upside risks highly likely given potential demand shift from Europe as the production shutdowns have already started in the region. Based on our conservative estimates, the stock trades at a P/E of 5.5 and EV/EBITDA of 5.2 on its 2023 prospective earnings. Considering 1) upside potential on its export sales with its cost advantage, 2) on-going EBITDA growth momentum in the near term and 3) more visible growth prospect with increasing soda ash capacity, we maintain our “Outperform” rating for the stock.

Earnings momentum is still strong backed by chemical segment: On consolidated basis in 2H22, we forecast 181% and 160% YoY growth for net sales and EBITDA on YoY basis where the biggest contributor of EBITDA is expected to be chemical segment with 47% share (1H22: 35% 2021: 23%), while share of architectural glass segment may decline to 30% (1H22: 37%, 2021: 39%). For 2023, we believe Sisecam shine through among its peers and we calculate a 29% YoY EBITDA growth (56% higher than its 2018-2020 average in USD-terms), along with the rise of high profitable and defensive chemical segment share.

Potential to become a beneficiary of natural gas crisis in Europe: As of 1H22, Sisecam’s export from Turkey to other foreign countries accounted for 18% of its revenue while 48% of this export was generated from sales to Europe. Sisecam’s 14 of its total 45 facilities are based in Europe and only 6 of them use natural gas in production. This offers the company a huge cost advantage over its competitors in the region. Although there has been a considerable increase in logistic costs recently, we believe Sisecam could stand to benefit from a potential demand shift from Europe and rising glass prices on higher energy costs in Europe, unlike it did in Turkey.

Strong balance sheet even in investment cycle: Sisecam has entered into capex cycle with Pacific LLP investment where its total soda ash capacity is projected to increase by 60% by the end of 2030. In 2025, the annual capex is forecast to peak while its net debt/EBITDA level is likely to be around healthy 2.0x level vs. its current level of 0.9x. Its solid balance sheet is not only to enhance its earnings visibility but also make the stock a defensive pick even in highly unpredictable market environment.

“Outperform” maintained: We use a blended valuation with an 50% weighting for DCF and 50% for peer valuation. On our 2023YE forecasts, Sisecam trades at an EV/EBITDA of 5.2x, at almost par with its historical average and P/E of 5.5x – implying a 47% discount. Although the current EV/EBITDA do not point to any considerable discount, we think that Sisecam is well positioned to take advantage of European energy crisis with a solid growth prospect on 1) its soda ash investment, 2) potential contribution of solar panel investment and 3) increasing use of glass packaged products with global re-cycling trend. Accordingly, we maintain our Outperform rating for the stock.




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