TAV Airports Holding: Considering risk and reward, valuation looks attractive

  • We are revising up our 12-mnth TP by 20% to TL31.0, implying 61% upside potential
  • We are changing our rating to Outperform from Marketperform
  • We are adding TAVHL to our top picks

We expect leisure travel in Turkey to start in June 2021. We forecast 3Q21E PAX excluding IAA to be 23.5mn implying 70.5% of its 2019 level.

In 2021E, we expect EBITDA margin to increase to 27.4% from 7.5% in 2020 mainly due to increase in PAX numbers.

Stronger than expected 3Q21E results and further recovery in international PAX numbers could be the short-term positive catalysts.  Completion of the Almaty Airport transaction could be another catalyst ahead.

We are revising up our 12-mnth TP by 20% to TL31.0, implying 61% upside potential and we are changing our rating to Outperform from Marketperform.

Upcoming tourism tide to raise all boats. In 2020, due to Covid-19, number of foreign visitors to Turkey declined by 71.7% to 12.7mn visitors from 45.1mn in 2019. Considering the pace of growth in the past visitor numbers, we believe as the lockdowns around the world ease and vaccination programs continue, there will be a rapid recovery positively affecting Turkish aviation industry.

The only airport in town. TAVHL is the sole airport operator in the regions which they carry on a business. While airline companies will have to compete for PAX in the upcoming leisure travel recovery, TAVHL will be enjoying its competitive position.

Almaty Airport acquisition at a reasonable price. TAVHL signed an agreement on May 2020 to acquire 100% of Almaty Airport. In 2019, Almaty Airport posted EUR184mn revenue which was a as big as 25% of TAVHL’s revenue in 2019. Almaty Airport posted US$69mn EBITDA in 2019. According to TAVHL’s presentation, TAVHL will pay US$415mn of EV to acquire the asset with net debt of US$20mn which implies EV/EBITDA multiple of 6.0x. During 2016-2019 period, peer group of TAVHL traded at a median EV/EBITDA multiple of 10.5x. We believe TAVHL is buying Almaty Airport at a 43% discount. We expect deal to be closed in May 2021.

Further lockdowns in domestic and international markets pose a risk. We expect PAX numbers to increase mainly through domestic markets in 2021E, then we forecast international numbers will be the main contributor in 2022E. Unexpected further lockdowns in both domestic and international markets create a downside risk to our PAX and profitability forecasts.

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