Earnings Report /
Turkey

Turkcell: Bottomline stronger than expected

  • Turkcell recorded TL1,858mn net income in 2Q22, 67.5% higher than our est. and 107.6% above consensus est.

  • Overall, 2Q22 results are stronger than we expected.

  • Catalyst is still missing for re-rating from depressed valuations

Cemal Demirtas
Cemal Demirtas

Head of Research

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ATA Invest
19 August 2022
Published byATA Invest

Overall, 2Q22 results are stronger than we expected. Both Turkey and international operations were managed well despite headwinds. In Turkey, due to longer term contract and reflecting the inflation to its prices, operations remained challenging. Amid ongoing concerns regarding Russia-Ukraine conflicts, Turkcell international operations remained resilient.

Management revised up its topline growth guidance to “>40%” from “30%” and its EBITDA guidance to c.TL20bn from c.TL19bn. The revised guidance is inline with our expectations.

On a positive note, Turkcell recorded lower-than-expected net financial expenses while TL depreciation continued. Although we expect gradual improvement in pricing and profitability, we believe rewards are much higher compared to potential risks at current prices.

We believe recovery in earnings and indications about its strategic direction could be the positive catalysts ahead.

Turkcell is currently trading at 3.0x 22E EV/EBITDA, implying 48% discount to its global peers. We have Outperform rating  and 12 month TP of TL29 for Turkcell, implying 65% upside potential (including dividend).

  • Turkcell recorded TL1,858mn net income in 2Q22, 67.5% higher than our est. of TL1,109mn and 107.6% above consensus est. of TL895mn. Higher than expected EBIT (+TL70mn), higher than expected income from investments net of fin. expenses (+TL271mn) & lower than expected taxes (+TL400mn) were the reasons behind stronger than expected net income.

  • Revenues were 3.4% above our estimates and EBITDA of TL5,030mn was 4.5% above our estimates.  The company guidance for 2022 is revised up: (1) topline growth to “>40%” from “c.30%” and (2) EBITDA to c.TL20bn from c.TL19bn.

Topline growth of 46.0% was 3.4ppt above our estimates. Turkcell Turkey revenues, constituting 75.2% of Group revenues, increased by 44.1%, y/y, mainly supported by 49.9% growth in corporate and 95.9% growth in wholesale revenues. Turkcell international revenues, comprising 11.9% of Group revenues, increased by 76.1%, y/y, mainly driven by revenue growth in Ukrainian operations and the positive impact of TL depreciation. Total tech fin. revenues, constituting 3.3% of Group revenues, increased by 71.2% y/y. Financell revenues and Paycell revenues increased by 64.7% and 77.5%, respectively, in 2Q22. Other subsidiaries’ revenues, at 9.7% of Group revenues, increased by 25.5% y/y, due to mild recovery in equipment revenues. Including fixed broadband and IPTV, Turkcell Turkey net subscribers increased by c.579K in 2Q22. Turkcell Turkey added 437K post-paid and 45K pre-paid subscriber in 2Q22. Mobile ARPU growth of 31.1% y/y was positively impacted by price adjustments to reflect inflationary impacts & upsell efforts & a growing customer base

Consolidated EBITDA was up 45.1% y/y to TL5.03bn, 4.65% higher than our estimate. Turkcell Turkey EBITDA increased by 37.5% y/y to TL3.94bn in 2Q22, implying 42.1% EBITDA margin whereas Turkcell International EBITDA was up by 85.4% y/y to TL750mn in 2Q22, implying 50.7% EBITDA margin. The EBITDA of tech fin segment was up by 59.3% y/y TL216mn in 2Q22 where other subsidiaries EBITDA increased by 110% y/y to TL121mn during the same period.

Net debt increased by TL2.05bn q/q to TL21.56bn in 2Q22, implying 1.28x Net Debt/EBITDA. Excluding Turkcell Consumer Finance Company’s (TCF) consumer loans, its net debt was up by 11.4% q/q to TL19.07bn in 2Q22, implying 1.1x Net Debt/EBITDA. Including advance payments, hedging and excluding FX swap transactions for TL borrowing, Turkcell’s net FX short position fell to US$149 in 2Q22 from US$204mn in 1Q22.