Morning Note /
Turkey

Turkish equities have been ignoring lira weakness

  • Lira has weakened past 9.90 against the dollar as stronger than expected US CPI pushed both UST10s and DXY higher

  • Nobody is wondering is the Lira will weaken beyond 10 against USD today

  • ISDMR Board decided to propose cash dividend TL 1.50/shr. (positive for EREGL and ISDMR)

Batuhan Ozsahin
ATA Invest
11 November 2021
Published by

Lira has weakened past 9.90 against the dollar as stronger than expected US CPI pushed both UST10s and DXY higher. Equities has been ignoring Lira weakness for a while but it cannot go forever as it starts hurting both inflation expectations and corporate margins. It becomes a daunting job to do budgets or even worse for purchasing managers that have to import raw materials for production. Too much weakness is not good for Lira is not good for any player in Turkish economy, not even for the state who has increased its share of FX borrowing over the last 3 years significantly. Nobody is wondering is the Lira will weaken beyond 10 against USD today and probably it will bring the awaited correction in equities or is the psychology that everything is getting cheaper in USD terms will help them? Numbers always beat psychology at the end, as we say no player in the economy benefits from this

Company news:

*ISDMR TI> Board decided to propose cash dividend TL 1.50/shr. (positive for EREGL and ISDMR) This cash dividend implies 10.3% dividend based on yesterday’s closing of TL14.50. This cash dividend is expected to paid by 8 Dec 2021. Erdemir (EREGL) owns 94.87% of ISDMR and the remaining 5.13% is free float. We do not expect EREGL to pay an additional cash dividend this year but likely to a higher cash dividend in 2022 from 2021 earnings. In our base scenario with 65% payout ratio, we expect EREGL to pay TL2.70/shr in 2022, implying 13.9% dividend yield. In optimistic scenario with 90% payout ratio, EREGL could pay c.TL3.73 cash dividend, implying c.%19.2 cash dividend. EREGL remains one of our top picks. Considering relatively lower liquidity with c.5.13% free float. We do not have rating for ISDMR but based on rough valuation on LTM-21 comparison, ISMDR is trading at 2% premium compared to EREGL, which looks relatively fair. Recall that, ISDMR distributed cash dividends on March 24, implying 10.62% dividend yield. Isdemir Board aims to distribute cash dividend by 8 Dec 2021, pending for the approval at the General Assembly meeting to be held on 6 Dec 2021.

 

Weekly Agenda:

11 Nov: September Current Account Balance (Consensus +US$1.4)

12 Nov: November CBRT Macro Expectations Survey

12 Nov: September Industrial Production (Consensus -0.7%)