SAHOL: With 70TL Target Price, we include SAHOL in our research scope
We believe that Sabancı deserves a higher valuation as the outlook for its energy joint ventures has improved significantly, its banking operations have provided resilient performance and asset sales have increased its cash position at the holding level. We calculate Sabancı’s NAD target as TL 188 billion (including Enerjisa Üretim) based on our subsidiary valuations, which corresponds to a 55% discount compared to target NAD. Assuming that the holding discount will decrease to 25% in our valuation (2-year average of 41%), we reach the target price of 70.0 TL, which offers an upside potential of 69%.
ENJSA: We include ENJSA in our Research with a Target Price of 48 TL
Enerjisa is Turkey’s leading electricity distribution and retail company with a 23% volume in total electricity distribution. We see ENJSA (1) higher return on investment from increased Adjusted Asset Base after inflation revaluation (2) nominally higher retail margins due to increase in electricity prices (3) potential improvement in leverage with capital expenditure paybacks growing faster than capital expenditures because we like it.
Sabancı Holding has a 50-50% joint venture with E.ON, with an installed capacity of 3.7 GWh in the energy generation business line. We think the market has underestimated the Energy Generation business, which managed to reduce the Net Debt/EBITDA ratio to 0.1x as of 9M22 (from 8.3x in 2017). We estimate the EBITDA of the electricity generation segment to reach USD 604mn in 2022. In our target NAD for SAHOL; We apply an EBITDA multiplier of 7.0x for ENJSA Production (against the domestic peer average of 11.6x) and achieve a valuation of TL 51 billion. For the Energy Generation business line
our valuation accounts for 27% of our target NAD.
New Economy investments within the Holding
SAHOL aims to accelerate value-creating investments, especially in new economic areas such as climate technologies, advanced materials and digital technologies (with an IRR target of at least 1-3% above AOSM, depending on the region). Following the sale of Sabancı Holding shares in Philsa for TL 3.1 billion at the beginning of 2022, SAHOL continues a successful buyback program by purchasing a total of 99.8 million shares. The company further strengthened its cash position by selling 64.7 million of these shares recently. This will allow new investments under the Holding. SAHOL’s holding net cash position stood at TL 4.4 billion as of 3Q’22.
The CPI-indexed securities portfolio, which corresponds to 78% of its equities as of 9M22, supported AKBNK’s profitability in the high inflation environment. Although its strong capital and high reserve ratios contribute to the Bank’s continued strong profitability, we expect a normalization in profitability in 2023 with a 33% return on equity (2022T: 58%). In 2023, we think that the profitability of insurance companies, which constitute 3% of the Target NAD, may improve with the improvement in premium production, shrinkage in loss frequencies and increase in investment income.
While we expect cement producers to benefit from strong domestic demand and rising product prices in the 23T, we think we are close to seeing the composite business accelerate at Kordsa. Brisa, a joint venture of SAHOL and Bridgestone, offers a long-term growth story by expanding its scale. The combined EBITDA of these companies was approximately US$400 million in 2021, which we estimate could increase to US$491 million in 2022T and $557 million in 2023T.
You can access the full report here
Investment information, comments and recommendations contained herein are not within the scope of investment consultancy. Investment consultancy service; brokerage houses, portfolio management companies, non-deposit banks and the customer within the framework of an investment consultancy agreement. The comments and recommendations contained herein are based on the personal opinions of those commenting and recommending. These views may not be suitable for your financial situation and risk and return preferences. Therefore, making an investment decision based solely on the information contained herein may not yield results that meet your expectations.