1-Ton Launch, Electrification, And Craiova Upgrades Will Transform Exports

Key Takeaways

• Increased export volumes and new vehicle launches are set to boost revenues and enhance net margins through economies of scale.
  
• Cost management and capacity utilization improvements are projected to enhance profitability and earnings efficiency amid competitive pressures.
  
• Competitive pressures, economic challenges, and increased spending on expansion may strain Ford Otomotiv's profitability and financial stability, especially in the domestic market.

Catalysts

Engages in the manufacture, assembling, import, export, and sale of motor vehicles and spare parts primarily in Turkey.

• Significant increase in export volumes is expected, particularly driven by the launch of the 1-Ton vehicles produced for a partner company, which is likely to boost revenues and overall market presence.
  
• Investment recovery and increased economies of scale from new vehicle launches, including electrification, are expected to enhance net margins over time.
  
• Improved capacity utilization, specifically with the successful upgrades at the plant in Craiova, Romania, is anticipated to support higher production levels and earnings efficiency.
  
• Cost management strategies and innovative actions aimed at reducing expenses are projected to enhance profitability, supporting better EBITDA margins in the future despite challenges with pricing and competitive pressures.
  
• Potential stabilization of the gap between euro-Turkish lira movements and inflation is expected to positively impact profitability, providing a more conducive economic environment for export-driven revenue growth.

Ford Otomotiv Sanayi Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ford Otomotiv Sanayi's revenue will grow by 25.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.5% today to 9.2% in 3 years time.
• Analysts expect earnings to reach TRY 109.5 billion (and earnings per share of TRY 306.29) by about May 2028, up from TRY 38.9 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.0x on those 2028 earnings, up from 8.0x today. This future PE is lower than the current PE for the TR Auto industry at 19.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 40.08%, as per the Simply Wall St company report.

Ford Otomotiv Sanayi Future Earnings Per Share Growth

Risks

• Competitive pressures and pricing challenges in the Turkish domestic market have led to a decrease in domestic revenues by 13%, which could impact overall profitability and net margins.
  
• The depreciation of the Turkish lira against the euro was significantly lower than the inflation rate, impacting export profitability and potentially reducing earnings from international sales.
  
• Increasing competition, particularly from Chinese brands due to regulatory changes, could lead to pricing wars and affect revenue and net margins in the domestic market.
  
• Macroeconomic uncertainties, such as ongoing monetary policies and economic difficulties impacting auto financing, pose risks to domestic market stability and revenue streams.
  
• Elevated capital expenditures related to new product launches and capacity expansion could strain cash flow and increase leverage, potentially affecting net financial health in the short term.

Valuation

• The analysts have a consensus price target of TRY1477.99 for Ford Otomotiv Sanayi based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of TRY2240.0, and the most bearish reporting a price target of just TRY1065.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be TRY1185.2 billion, earnings will come to TRY109.5 billion, and it would be trading on a PE ratio of 13.0x, assuming you use a discount rate of 40.1%.
• Given the current share price of TRY885.5, the analyst price target of TRY1477.99 is 40.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.