New Products And Increased Efficiency Will Capitalize On Emerging Consumer Trends In Turkey's Confectionery Market

Key Takeaways

• Strong market position in Turkey and focus on NPD signal potential for revenue growth and margin expansion by capturing emerging consumer trends.
  
• Operational improvements and strategic hedging aim to enhance production efficiency and stabilize profit margins amid geopolitical challenges.
  
• Rising raw material costs and currency fluctuations have strained margins, while geopolitical and economic challenges hinder revenue and earnings growth both domestically and internationally.

Catalysts

Engages in the manufacture and sale of biscuits, chocolates, chocolate coated biscuits, wafers, and cakes in Turkey and internationally.

• The company's strong market position and continued growth in key categories and markets, especially in Turkey's chocolate and cake segments, indicate potential revenue growth as they capitalize on rising market shares across these segments.
  
• Continued focus on NPD (new product development) and innovation, with 13% of domestic sales and 7% of international sales coming from new products, suggests a strong capacity for revenue growth and potential margin expansion by capturing emerging consumer trends.
  
• The implementation of operational excellence programs and IoT solutions to increase production capacity without additional CapEx could improve net margins by enhancing production efficiency and reducing costs.
  
• The company's strategic hedging of raw material prices (e.g., 90% coverage for cocoa in 2025) mitigates cost volatility, which could stabilize gross profit margins and improve earnings predictability.
  
• Plans to recover from slower demand in Central Asia, coupled with successful price adjustments and alternative strategies in the Middle East and North Africa, could potentially drive revenue growth and stabilize EBITDA margins despite geopolitical and economic challenges in these regions.

Ülker Bisküvi Sanayi Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ülker Bisküvi Sanayi's revenue will grow by 38.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.3% today to 11.5% in 3 years time.
• Analysts expect earnings to reach TRY 17.7 billion (and earnings per share of TRY 52.67) by about February 2028, up from TRY 4.8 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 9.8x on those 2028 earnings, up from 8.7x today. This future PE is lower than the current PE for the TR Food industry at 22.2x.
• 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 28.86%, as per the Simply Wall St company report.

Ülker Bisküvi Sanayi Future Earnings Per Share Growth

Risks

• The appreciation of the Turkish lira relative to other currencies has negatively impacted international sales margins by reducing the competitiveness of exports, which could affect future revenue and EBITDA.
  
• Increased raw material costs, particularly due to high cocoa prices, have not been fully offset by price adjustments, leading to compressed gross margins, impacting earnings.
  
• Challenges in key international markets due to geopolitical tensions and inflation control measures, such as in the Middle East and Central Asia, have led to revenue and EBITDA contraction.
  
• There has been a decline in consumer purchasing power and higher interest rates in Turkey, which could further pressure domestic revenue growth.
  
• Delayed price increases in some international markets due to contractual agreements with retailers have temporarily constrained margin recovery, impacting near-term earnings.

Valuation

• The analysts have a consensus price target of TRY219.18 for Ülker Bisküvi 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 TRY270.0, and the most bearish reporting a price target of just TRY167.9.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be TRY153.7 billion, earnings will come to TRY17.7 billion, and it would be trading on a PE ratio of 9.8x, assuming you use a discount rate of 28.9%.
  
• Given the current share price of TRY112.8, the analyst price target of TRY219.18 is 48.5% 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.