Turkey Food Retail: 2024 likely a year of two halves

By Citi Research



We update our models to incorporate recent minimum wage hike (+49%, at  the higher end of our expectation of 40-50%) and macro datapoints. Our  sales/EBIT expectations increase c.4%. We remain fundamentally  constructive on Turkish grocery seeing it well positioned to pass through  inflation and we see the sector as a defensive exposure once a consumption  slowdown is more visible (on the back slower credit growth amid higher  rates).

We make slight increases to our target prices for BIM (TL450), and  Migros (TL470). Our SOK target price is unchanged (TL93). All are Buy-rated.


2024: Story of two halves

We expect inflation and growth to remain elevated in  1H24 (CBT expects inflation to peak at over 70% in 2Q24), supported by base effects  as well as a minimum wage increase from January supporting consumption, driving  >80% YoY sales growth in 1H24 on average for our covered retailers. In 2H24, once  the effects of disinflationary measures and slower credit impulse are more visible, we would expect retailer growth to slow to 50-60% YoY, averaging close to 70% for the full year.

Cost pressures — 49% minimum wage hike from January 2024 is at the higher end of our expectation (40-50%)

Assuming this is the only wage hike (as opposed to 2022/2023) we would not expect material pressure on retailer margins as we think it will be largely passed on to consumers. If energy prices do not increase sharply, and mindful of 2023 negative one-off effects (earthquake and early retirement), we see cost pressure for retailers somewhat easier in 2024 vs. 2023. At the same time, higher interest rates and slower credit growth will likely put pressure on consumption, which could require some price investments.

However, we do not expect price investments to be driven by discounters who naturally benefit from trading down, and we continue to see room for market share gains from mom-and-pop stores / traditional retailers.


Upcoming elections as a catalyst

Yapi Kredi Bank:  Downgrade to Hold: Risk/reward looks balanced after  recent run

While we note improved sentiment towards  Turkish domestic assets, we continue to see the period around upcoming local  elections as an important catalyst for local assets, as some investors are still  concerned about the sustainability of disinflationary policies after the elections. We  also do not rule out that foreign investor demand might be subdued unless either  entry points in USD become more attractive again (we note expectations of TRY  correction post 1Q24) or TRY outlook is improved with further monetary tightening.



Despite strong performance in 2023, Turkish grocers trades at a  discounts to CEEMEA peers on 2024E P/E: BIM/Migros at 9.4x /SOK at 6x vs. peer  average of 18x). Updated target prices: BIM (TL450) and Migros (TL470).


Follow our  English language YouTube videos  @ REAL TURKEY:   https://www.youtube.com/channel/UCKpFJB4GFiNkhmpVZQ_d9Rg

And content at Twitter: @AtillaEng

Facebook:  Real Turkey Channel:   https://www.facebook.com/realturkeychannel/


Published By: Atilla Yeşilada

GlobalSource Partners’ Turkey Country Analyst Atilla Yesilada is the country’s leading political analyst and commentator. He is known throughout the finance and political science world for his thorough and outspoken coverage of Turkey’s political and financial developments. In addition to his extensive writing schedule, he is often called upon to provide his political expertise on major radio and television channels. Based in Istanbul, Atilla is co-founder of the information platform Istanbul Analytics and is one of GlobalSource’s local partners in Turkey. In addition to his consulting work and speaking engagements throughout the US, Europe and the Middle East, he writes regular columns for Turkey’s leading financial websites VATAN and www.paraanaliz.com and has contributed to the financial daily Referans and the liberal daily Radikal.