Global Urbanization And Clean Energy Will Expand Steel Demand

Key Takeaways

• Ongoing investments in efficiency and green technologies position the company for margin expansion, cost reductions, and positive earnings surprises beyond current forecasts.
  
• Strategic focus on premium and low-carbon steel enables market share gains, export pricing strength, and sustained profit outperformance versus less advanced competitors.
  
• Structural market headwinds, regulatory pressures, rising costs, currency volatility, and execution risks threaten Eregli's profitability, while large-scale transformation investments pose added uncertainty.

Catalysts

Produces and sells iron and steel rolled products, alloyed and non-alloyed iron, steel and pig iron castings, cast and pressed steel, coke, and by-products in Turkey and internationally.

• While analyst consensus expects incremental EBITDA per ton gains from recent investments, the company signals that the full $40 per ton benefit is a conservative estimate; with commissioning completed and a steeper learning curve, there is a strong possibility for materially higher efficiency-driven gains, leading to an EBITDA per ton and net margin profile meaningfully ahead of current expectations once all new assets are fully ramped.
  
• Analysts broadly assume cost reductions and efficiency gains will gradually appear, but management's ongoing CapEx in energy efficiency, pelletizing, and solar power can deliver a much larger and sustained reduction in operational costs, driving both net margin expansion and positive earnings surprises given conservative company projections and stable raw material pricing.
  
• Erdemir's solid balance sheet and disciplined capital structure, with net debt to EBITDA below 3 and ample headroom, enable faster and larger-scale value-added investments as global urbanization and infrastructure build-out in emerging markets accelerate, unlocking outsized volume and revenue growth versus peers with stretched leverage.
  
• The company is strategically positioned to capture surging demand for premium steel from the electrification and clean energy build-out (including wind turbines and EVs), leveraging its modern plant and product mix to achieve both higher revenue per ton and more stable, premium export pricing, supporting sustained revenue and profit outperformance.
  
• Early-mover green steel and Net Zero initiatives can enable Eregli to secure long-term contracts with large OEMs and infrastructure developers in both Turkey and Europe, capturing market share from less advanced rivals and supporting structurally higher margins, earnings stability, and an export premium as global buyers increasingly favor low-carbon steel.

Eregli Demir ve Çelik Fabrikalari T.A.S Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Eregli Demir ve Çelik Fabrikalari T.A.S compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Eregli Demir ve Çelik Fabrikalari T.A.S's revenue will grow by 16.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 4.0% today to 10.8% in 3 years time.
• The bullish analysts expect earnings to reach TRY 35.0 billion (and earnings per share of TRY 5.0) by about August 2028, up from TRY 8.3 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 bullish analyst cohort, the company would need to trade at a PE ratio of 16.3x on those 2028 earnings, down from 23.0x today. This future PE is lower than the current PE for the TR Metals and Mining industry at 23.0x.
• 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 30.36%, as per the Simply Wall St company report.

Eregli Demir ve Çelik Fabrikalari T.A.S Future Earnings Per Share Growth

Risks

• Ongoing global steel overcapacity and weak demand, coupled with pressure from protectionist trade policies and muted recovery in key markets like China, could continue to suppress steel prices and constrain revenue growth for Eregli Demir ve Çelik Fabrikalari T.A.S.
  
• Intensifying emissions regulations and the increased cost of compliance with EU's Carbon Border Adjustment Mechanism, as well as the company's heavy reliance on coal-based blast furnace technology, are likely to elevate production costs and erode net margins over time.
  
• Slow demand growth for new steel due to secular shifts toward recycled materials and emergent alternative construction materials may structurally reduce core market volumes and put long-term pressure on Eregli's sales and gross profitability.
  
• Currency volatility and continued dependency on imported raw materials expose the company to significant input cost swings and margin compression, particularly as the Turkish lira remains historically weak, threatening stability of earnings.
  
• Eregli is planning multi-billion dollar capital spending on efficiency, "green transformation," and potential new ventures (such as the gold mine) but faces risks around the realization of cost savings, execution challenges, and the uncertainty of new investments, which could strain cash flows and increase leverage if actual benefits do not materialise as projected.

Valuation

• The assumed bullish price target for Eregli Demir ve Çelik Fabrikalari T.A.S is TRY36.75, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Eregli Demir ve Çelik Fabrikalari T.A.S's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of TRY36.75, and the most bearish reporting a price target of just TRY16.09.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be TRY325.0 billion, earnings will come to TRY35.0 billion, and it would be trading on a PE ratio of 16.3x, assuming you use a discount rate of 30.4%.
  
• Given the current share price of TRY27.26, the bullish analyst price target of TRY36.75 is 25.8% 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.