Inflation And Turkish Exposure Will Squeeze Margins Yet Hope Endures

Key Takeaways

• Heavy reliance on the domestic market and rising input costs expose profitability to macroeconomic risks and inflation-driven margin pressures.
  
• Regulatory changes and evolving consumer preferences toward healthier foods could undermine core product demand and long-term growth prospects.
  
• Margin pressure from rising input costs, currency volatility, and weak key export markets risks profitability, while high working capital needs threaten future growth investment flexibility.

Catalysts

Manufactures, markets, and sells biscuits, chocolates, chocolate coated biscuits, wafers, and cakes in Turkey and internationally.

• While Ülker continues to benefit from the rising demand for packaged snacks and branded foods in both its domestic and international markets, persistent inflation and currency volatility in Turkey threaten to compress revenue growth as real purchasing power erodes and the company's 72% revenue concentration in its home market increases vulnerability to further macroeconomic shocks.
  
• Although investments in digital distribution, supply chain AI, and operational efficiency are positioned to drive future margin expansion, relentless input cost inflation-especially in cocoa, energy, and packaging-and heightened supply chain disruptions have led to recent gross margin declines, with ongoing exposure likely to pressure EBITDA and net income in the coming quarters.
  
• While ongoing new product launches and health-oriented innovation have successfully increased snacking revenue and brand relevance, shifting consumer preferences toward healthier, less processed products and increasing regulatory scrutiny of sugar and ultra-processed foods could undermine volume growth for Ülker's core biscuit and chocolate categories over the long term.
  
• Despite efforts to diversify across MENA, North Africa, and Central Asia with growing export sales, heavy competitive pressure and shrinking markets-most notably in the Middle East-are driving greater promotional spending and brand equity investments, which has already led to double-digit EBITDA declines regionally and may continue to erode overall profitability.
  
• While Ülker's strong balance sheet and ongoing refinancing efforts position it to weather short-term liquidity challenges, sustained high working capital requirements and phased inventory build-ups-driven by commodity price swings and procurement timing-risk constraining free cash flow generation and delaying deleveraging, even as net debt to EBITDA remains low for now.

Ülker Bisküvi Sanayi Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Ülker Bisküvi Sanayi compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Ülker Bisküvi Sanayi's revenue will grow by 24.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 6.7% today to 11.9% in 3 years time.
• The bearish analysts expect earnings to reach TRY 19.8 billion (and earnings per share of TRY 46.14) by about August 2028, up from TRY 5.8 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 5.9x on those 2028 earnings, down from 7.3x today. This future PE is lower than the current PE for the TR Food industry at 19.3x.
• Analysts expect the number of shares outstanding to grow by 0.21% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 30.15%, as per the Simply Wall St company report.

Ülker Bisküvi Sanayi Future Earnings Per Share Growth

Risks

• High volatility and sustained increases in key raw material costs such as cocoa, hazelnut, and packaging are leading to margin compression, as seen in the recent flat or declining gross profit and a decrease in EBITDA margin, which poses an ongoing threat to overall profitability and net earnings.
  
• Heavy dependence on the Turkish domestic market-contributing 72% of total revenue-exposes the company to significant country-specific macroeconomic risks including high inflation, a fluctuating lira, and ongoing GDP slowdown, which may reduce domestic demand and directly impact revenue growth.
  
• Shrinking and structurally weak markets in the Middle East and North Africa, coupled with heightened competitive pressure and aggressive industry-wide promotions, are resulting in lower profitability, particularly in regions where Ülker's cost base is under pressure, threatening both revenue and net margin expansion in these key export areas.
  
• Persistent large deviations and recent declines in gross margin, due not only to input cost inflation but also to mix shifts (such as lower chocolate sales in hotter months) and the need for heavier promotional spend to defend market share, signal ongoing challenges to stabilizing and improving operating margins.
  
• Elevated inventory and receivables, acknowledged as temporary but with no specific public normalization targets, increase working capital requirements and risk putting pressure on free cash flow if normalization does not occur as expected, potentially limiting the company's ability to invest in growth or return capital to shareholders.

Valuation

• The assumed bearish price target for Ülker Bisküvi Sanayi is TRY142.9, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Ülker Bisküvi Sanayi's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of TRY265.0, and the most bearish reporting a price target of just TRY142.9.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be TRY166.2 billion, earnings will come to TRY19.8 billion, and it would be trading on a PE ratio of 5.9x, assuming you use a discount rate of 30.2%.
  
• Given the current share price of TRY115.2, the bearish analyst price target of TRY142.9 is 19.4% 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.