Adding Arcelik into Our Top Picks list
We are adding Arcelik into our Top picks list: We include Arcelik into our Top picks list, owing mainly to our expectation that the company’s financials should recover faster than the initial expectations and the stock’s cheap valuation. More specifically, 1) following 11% y/y growth in 1Q20, white goods market in Turkey contracted by 11% and 8% y/y in April and May, respectively. In June, however, our channel checks suggest that the market could record a double-digit growth, boosted by low interest rates and pent up demand. 2) Strong demand rebound in Germany in May, where the lockdown restrictions eased earlier than other countries, and the recently announced PMI data for June suggest that recovery in the European appliance market may also be stronger than initially expected.
3) 2Q profit margins could be resilient thanks to a strong EUR/USD parity, low commodity prices and the opex discipline. 4) Significant decline in interest expenses will support the bottom-line, 5) Unlike initial expectations, Working Capital Requirement (WCR) should remain stable in 2020. 6) Arcelik has substantially underperformed its international peers and BIST100 since the Covid-19 outbreak. Currently, the stock is currently trading at 2021e EV/EBITDA of 4.7x, vs. 5 year avg of 7.8x
Please refer to our report “Recovery is faster than expected” Upgrade to Buy” published today (June 24).
Following the inclusion of Arcelik, our model portfolio constitutes of Garanti, Yapi Kredi, Koc Holding, Arcelik, Tofas, Turk Traktor, Migros and Koza Gold.
Our Top Picks portfolio has overperformed the BIST-100 by 4.7% YTD.
PA Turkey does not hold positions in Arçelik shares, and does not recommend any financial assets. This report is for information purposes only.
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