Earnings Report /

Arçelik A.Ş: 2Q22 review – Results weaker than expected

  • Arcelik realised TL259mn net income in 2Q22, lower than our estimate of TL513mn and consensus of TL487mn.

  • We maintain our 12-mnth TP at TL103, implying 61% upside potential. We keep Arcelik in our top picks list.

  • Short-term weakness could be buying opportunity.

Cemal Demirtas
Cemal Demirtas

Head of Research

ATA Invest
27 July 2022
Published byATA Invest

Despite impressive topline growth, we did not like the company’s operating performance, which was pressured by higher commodity costs as well as weak Euro/US$. However, we believe that the worst might be over in terms of profitability in 2Q22.                                 

Arcelik recorded EBITDA margin of 7.5% in 2Q22, below our estimate of 7.7%. Deviation at the operational level does not look very significant but is still disturbing.

In addition to lower EBITDA, higher FX-related expenses recorded in 2Q22 is difficult to understand. Despite weak 2Q22 results,  management guidance of “higher than 90% growth” and c.10.0% EBITDA margin looks encouraging. As management hinted, after very weak margin in April and May, there were initial signals of recovery in margins in June. Thus, we believe recovery in EBITDA margin is likely in the following quarters, as supported by full-year guidance of  c.10% EBITDA

Weaker EUR/US$ and weaker demand could be the downside risks to our estimates. Considering rewards vs risks, we believe short-term weakness due to weak 2Q22 results could be a buying opportunity.

  • Arcelik realised TL259mn net income in 2Q22, lower than our estimate of TL513mn and consensus of TL487mn. Topline was inline with our estimates but EBITDA margin of 7.5% was 23bps below our estimates.  Lower than expected EBITDA and higher than expected financial expenses were the major reasons behind lower than expected net income of TL259mn.

  • Consolidated revenue guidance for 2022 is revised up to “>90%”, driven by “c.70%” (prev. 60%) growth in Turkey (in TL) and “>20%” growth international revenues (prev. c.25%) (in FX). EBITDA guidance revised down by 50bps to c.10.0%. NWC/Sales guidance of c.25% and Capex of €220mn are maintained. 

  • Considering steep TL depreciation, high inflation & half-year inorganic growth prospects, we foresee 100.3% topline growth & 9.5% EBITDA margin for 2022E. 

Significant topline growth of 122.3% y/y in 2Q22 supported by both domestic and international growth.  Domestic revenues increased by 103.3% y/y to TL9.74bn in 2Q22 whereas international revenues surged by 131.6% y/y to TL22.6bn, representing 70% of consolidated revenues, during the same period.  International growth was driven by 47.9% acquisition impact, 76.5% FX impact and 7.2 % organic growth. 

Arcelik realised EBITDA margin of 7.5% in 2Q22, weaker than our estimate of 7.7% and consensus of 7.7%.  Arcelik realised gross margin of 29.6% was 29bps below our estimates and opex/net sales ratio was 39bps above our estimates. Higher raw materials prices coupled with weaker TL, lower capacity utilization on both quarterly and yearly basis and weaker €/$ parity led to lower gross margin in 2Q22 whereas higher logistics, marketing & sales expenses led to higher opex.

Arcelik’s net debt increased by 30% q/q to TL29.3bn (up by 12% in US$) in 2Q22 whereas NWC/Net sales ratio increased to 28.3% by 60bps to 27.7% as of 2Q22-end.   Despite steep TL depreciation, cash outflows regarding acquisition, cash dividend and share buyback, Arcelik had a net debt/EBITDA ratio of 3.15x in 2Q22 versus 2.81x in 1Q22. Excluding the negative impact of share buyback (0.32x) and acquisitions (0.13x), Arcelik’s net debt/EBITDA was standing at 2.70x in 2Q22.  Since July 2, 2021, Arcelik bought back 67.59mn shares at avg price of TL44.56 which is 33% below yesterday’s closing of TL66.60, implying a TL1,489mn gain based on current price. Arcelik Board's initiated additional buyback program in May 2022 and decided to increase the amount of the fund for the allocation of the share buy-back to TL9bn from TL3bn. If the extended buy-back is completed as planned, then free float of Arcelik could decline to 5%, considering that free float declined to 15% after latest buy-back.