Turkey stock picks: Ünlü & Co adds Arçelik to its recommendations

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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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.