New K0 Models And Turkish Acquisition Will Expand Global Presence

Key Takeaways

• Acquisition of Stellantis Turkey enhances market leadership, enabling economies of scale and cost synergies, potentially improving net margins.
  
• Focus on new business areas like insurance sales is anticipated to drive additional revenue streams and profitability growth.
  
• High competition and tax challenges, along with limited vehicle availability and new model uncertainties, are negatively impacting revenues and net margins.

Catalysts

Manufactures and sells passenger cars and light commercial vehicles in Turkey.

• The ramp-up of new K0 model production and the launch of new variants are expected to significantly increase export volumes for the rest of 2025, likely boosting revenue.
  
• The acquisition of Stellantis Turkey is expected to enhance market leadership, enabling economies of scale and cost synergies, which could improve net margins and earnings.
  
• A planned EUR 256 million investment in a new light vehicle production is set to increase production capacity by 150,000 units annually by 2026, potentially increasing revenue.
  
• The potential extension of the Egea contract and the introduction of new models from the Stellantis partnership could prevent production gaps, supporting stable revenue and earnings during transitional phases.
  
• The focus on new business areas, such as insurance sales and the aftermarket for spare parts, is expected to drive additional revenue streams and profitability growth.

Tofas Türk Otomobil Fabrikasi Anonim Sirketi Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Tofas Türk Otomobil Fabrikasi Anonim Sirketi's revenue will grow by 33.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.0% today to 7.2% in 3 years time.
• Analysts expect earnings to reach TRY 22.1 billion (and earnings per share of TRY 48.16) by about May 2028, up from TRY 5.2 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 20.5x on those 2028 earnings, up from 19.2x today. This future PE is greater than the current PE for the TR Auto industry at 19.2x.
• Analysts expect the number of shares outstanding to grow by 0.17% per year for 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.

Tofas Türk Otomobil Fabrikasi Anonim Sirketi Future Earnings Per Share Growth

Risks

• High competition in local markets and lack of competitive advantage due to the current tax brackets could negatively impact revenues and net margins.
  
• Limited availability of imported light commercial vehicles and phase-outs of existing production models may hinder revenue growth and affect earnings.
  
• Implementation of hyperinflation accounting and net monetary losses are impacting profit before tax, leading to a decrease in net margins.
  
• Significant decline in domestic and export shipment volumes suggests potential challenges in revenue generation.
  
• The ramp-up stage for new models and uncertainties around the new business potential may impact earnings, with profitability yet to be proven.

Valuation

• The analysts have a consensus price target of TRY328.314 for Tofas Türk Otomobil Fabrikasi Anonim Sirketi 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 TRY546.0, and the most bearish reporting a price target of just TRY220.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be TRY307.0 billion, earnings will come to TRY22.1 billion, and it would be trading on a PE ratio of 20.5x, assuming you use a discount rate of 40.1%.
  
• Given the current share price of TRY200.0, the analyst price target of TRY328.31 is 39.1% 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.