Morning Note /

Turkey: It is central banks week, starting with the Fed

  • Fed will hike 25bps and that is priced in, while a total of 175bps expected for 2022

  • A crazy 1000 bps hike from Turkey's central bank would totally kill the economy and unemployment would skyrocket

  • Crazy prices are creating interest for steel makers & shortage of diesel

ATA Invest
14 March 2022
Published byATA Invest

It is Central Banks week starting with Fed on Wednesday and then CBRT on Thursday. Fed will hike 25bps and that is priced in, while a total of 175bps is expected for 2022. CBRT is likely to stick to its 14% policy rate, as the disconnect between market rates and inflation is far too big.

There are unfounded rumors that CBRT might hike between 250-500bps, which we do not find credible. First of all, 500 bps won’t do anything to bring stability. We have two dangers looming up on TRY:

  1. CA deficit will continue to increase fast with energy prices off the roof.

  2. The FX protected deposit scheme is proving to be a dangerous contingent liability, as the lira has depreciated faster than both CBRT and the government had anticipated.

We need capital inflows to keep the lira stable. How will that happen without positive real rates that always worked before? A crazy 1000 bps hike would totally kill the economy and unemployment would skyrocket. That would be political suicide.

Crazy prices are creating interest for steel makers & shortage of diesel in Europe is boosting refiners’ margins.

Macro news:

Banking Sector:

13-week annualized credit growth trend increased to 24% on the back of Turkish Lira commercial loans continued momentum by both public and private banks, while foreign currency loans continued to decelerate. Consumer loans slowed-down as its trend rate declined to 13.9% from 14.6%. Foreign currency deposits of the system declined by US$0.6bn in price adjusted series, while dollarization ratio of the system slightly increased to 58.5%.

NPL ratio of the system stood at 3.03%. NPLs of the system continue to remain unsustainably low in our view, we would expect NPLs to rise the current economic environment to 5% at YE22.

Industrial Production (IP) declined by 2.4% m/m in Jan’22 (+7.7% y/y). Industrial production* increased by 7.7% y/y in Jan’22 (Dec’21:12.5% y/y)

*CBT Survey of Participants: 2022 year-end inflation expectations realized at 40.47% in Mar’22. 2022 year-end US$/TL rate expectation realised at 16.68 in Mar’22. 2022 GDP growth expectations realised at 3.4% in Mar’22. Current Account Balance expectations realised at -US$21.2bn in Mar’22.

*Current account (C/A) deficit realised as US$7.11bn in Jan’22. (Bloomberg Cons: US$7.30bn) In Jan’22, there was a net outflow of US$0.77bn to portfolio investments (Dec’21: -US$2.0bn). 12M Trailing Current Account Deficit realised as US$20.2bn in Jan’22. 12M Trailing Current Account Deficit/GDP ratio realised as 2.5% in Jan’22. We expect Current Account Deficit (C/A) and CAD/GDP to be US$48bn and 8.8%, respectively in 2022.

Company news:

*SAHOL TI> bought back 480K shares at an average price of TL15.54 on 11 Mar 2022. Since 09 Nov 2021, the total number of shares bought back reached 32.0mn at an average price of TL14.77.

*ARCLK TI> bought back 410K shares at an average price of TL54.83 on 11 March 2022. Since 02 July 2021, the total number of shares bought back reached 55.9mn at an average price of TL40.07.

*BIZIM TI> 4Q21 Review: Better than expected results in all fronts. Bizim Toptan recorded TL60.9mn net income in 4Q21, higher than our est. of TL26.6mn and consensus of TL26mn. Excluding one-off deferred tax income of TL25mn, net income was TL9.3mn above our estimate. EBITDA of TL151.6mn was higher than our estimate of TL122mn. Adjusted for net financial expenses related to operations, adj-EBITDA of TL98.7mn was better than our est. of TL79.9mn. 2022 Guidance looks upbeat: (1) Topline growth of 50% (+/- 5%) (excl tobacco &sugar) vs our est. of 45%, (2) EBITDA margin of 5-6% vs our estimate of 5.0%.

*VESTL TI> recorded TL835mn net income in 4Q21, beating the consensus estimate of TL14mn. (Positive) Higher than expected EBITDA and lower than expected financial expenses as well as deferred tax asset related to asset revaluations led to stronger than expected net income. Overall, EBITDA, other income/expense and financial expenses fluctuates significantly during steep TL depreciation. Thus, it is better to look at net income as the key line. VESTL has a solid business model (40%: TV &Electronic devices and 60% : Consumer Durables) with 75% international and 25% Turkey geographic revenue breakdown. VESTL is currently trading at US$550mn whereas its subsidiary VESBE ( VESTL owns 82.53% of VESBE) is trading at US$760mn as of Friday closing. We believe 4Q21 results will be welcomed by the market.

*GUBRF TI> 4Q21 Results: Gubretas posted TL215mn net income in 4Q21. (not rated) Net sales increased by 191% y/y to TL4,533mn in 4Q21. Thanks to strong fertilizer prices, domestic revenues increased by 213% y/y to TL3,862mn in 4Q21 whereas Gubretas’ Iranian venture Razi’s revenues increased by 37% y/y to TL691mn during the same period. Gubretas’ EBITDA came at TL1,170mn in 4Q21, up 378% y/y. Domestic EBITDA increased to TL1,116mn in 4Q21 from TL131mn in 4Q20 while Razi’s EBITDA increased by 119% y/y to TL55mn. Net debt increased to TL1,197mn in 4Q21 from TL837mn in 3Q21. The company’s net debt / EBITDA ratio declined to 0.54x in 4Q21 from 0.66x in 3Q21.

Weekly Agenda:

March 14 MAVI 4Q21 cons TL 34 mn ATA TL 22 mn

March 15: February Home Sales( January 88.3K units)

March 15: February Central Government Balance

March 15: CBRT One-Week Repo Rate( Current 14%, Consensus 14%)