Overview: Turkcell is Turkey's leading telecommunications company with operations existing in Turkey, Belarus, Ukraine, Northern Cyprus and Kazakhstan. Services offered include mobile communications (cell phones, mobile internet and the like), fiber optic internet (Superonline), and gambling/lottery (Inteltek). They are one of three major mobile communication providers in Turkey, the other two include Vodafone and Avea, whom is owned by Turk Telecom(who is majority owned by two Saudi companies).
Stats: 11.4 P/E, 6.87 EV/EBITDA, F-score 4, 6% EBITDA growth in past 5 years. 3.3 billion in Cash. Enterprise value of 11.24B versus MC of 12.61B. P/S of 2.1, 1.8B debt. P/FCF:33.7. Payout ratio is listed as 47% on Yahoo, but FCF payout is averaging over 170% for the past two years. Share count steady for past five years. 10year BV growth: 23%, FCF growth 13.6%.
Synopsis: Turkcell is known for its quality network covering all of Turkey whereas VOD inherited a terrible network supposedly. With a population of over 73 million, and a growth rate of 1.5%, 26% of the population is under the age of 14. Inflation has been a concern in the past but has stabilized in the past five years to a robust 6-8% annually. A democratic parliamentary controlled economy, stability is well established with few extremists appearing or threatening the doctrine.
Currently the majority of Turkcells revenue is generated from mobile communications in Turkey. These have been adversely impacted by both regulatory decisions and increased competition, which has also eroded gross margins over the past several years. There are 33.5mm subscribers, of which 23mm are prepaid. Revenues generated from postpaid subscribers average 3x higher than prepaid subscribers. The general trend has been decreasing prepaid subscribers and a modicum increase in postpaid subscribers. This offers the most direct catalyst for TKC. As the market begins to mature the number of prepaid subscribers should increase, leading to a more consistent and higher revenue stream. Churn rates show the needed maturation of the mobile market as current rates exceed 33% in 2010. This compares to VZ and T whom average 1-2% churn rates.
Other ventures/markets have been mixed to say the least. Belarus has seen a 25% subscriber improvement, Ukraine has witnessed a 25% decrease but a mere 3% revenue decrease. For the current time and ease of understanding majority of revenues will continue to be derived from operations in Turkey. Collectively only 450mm in revenues is generated outside of Turkey, ~10% sales.
This could be a good overall hedge against large currency swings. The turkish lyra has depreciated versus the Euro in 2009, versus appreciated in 2010, with the exact opposite effect occurring with respect to the USD. Separated from the Eurozone possible immediate effects of devaluations, loan defaults, etc would be muted. In contrast to the US inflation is higher but overall government debt remains low.
If the trend to postpaid subscribers continues this could be a great opportunity. The concerning factor is the erosion of margins and the inroads Vodafone and Avea (42% postpaid subscribers) have made. Both of which are growing markedly faster than TKC. It appears the strategy is to undercut and although the network isn't as strong the lower prices seem to make up for it. Some future reading into the two should offer some much needed insight. For now 5/18 I will hold off and read about both competitors and alternatives (TEF). My understanding of accounting in Turkey is lacking too which is why I may be seeing some unsustainable FCF ratios. Under 10/share I think this would be a steal like no other. At 14 I'll wait for a bit. No position.
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