Rising Compliance Costs And Fierce Global Competition Will Dampen Profits

Key Takeaways

• Escalating regulatory costs, raw material volatility, and technological shifts undermine profitability and expose Eregli to margin compression and competitive threats.
  
• Heavy reliance on limited markets and traditional steel demand increases vulnerability to external shocks and weakens future revenue stability.
  
• Strategic investments, export diversification, and sustainability initiatives position the company for resilient growth, margin strength, and enhanced competitiveness in evolving global steel markets.

Catalysts

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

• The increasing global shift toward decarbonization and stricter environmental regulations is likely to drive up Eregli's compliance costs, while its continued reliance on coal-based blast furnace technology leaves the company exposed to future carbon taxes and penalties. This threatens to significantly erode net margins over the coming years.
  
• The rise of alternative materials such as composites and aluminum in automotive and construction is poised to reduce the structural demand for steel products, jeopardizing Eregli's core revenue streams even as it maintains high sales targets.
  
• Persistent volatility in iron ore and coking coal prices has already led to input cost inflation that outpaces steel price increases. With the risk of further disruptions in raw material supply chains and mounting global trade tensions, Eregli's profitability remains highly vulnerable, and earnings are at risk of further compression.
  
• Limited geographic diversification and continued heavy dependence on Turkish domestic demand and the EU export market heighten revenue risk, particularly given recent tightening of EU quota regimes and the risk of trade disruptions or local economic downturns. Revenue will become more volatile and exposed to single-market shocks.
  
• Intensifying competition from low-cost Asian producers and potential overcapacity in global steel markets will likely drive steel prices lower, resulting in weaker return on invested capital for Eregli and threatening both EBITDA consistency and long-term free cash flow generation.

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

Assumptions

• This narrative explores a more pessimistic perspective on Eregli Demir ve Çelik Fabrikalari T.A.S compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Eregli Demir ve Çelik Fabrikalari T.A.S's revenue will grow by 7.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 4.0% today to 13.5% in 3 years time.
• The bearish analysts expect earnings to reach TRY 34.9 billion (and earnings per share of TRY 3.01) by about July 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 bearish analyst cohort, the company would need to trade at a PE ratio of 7.1x on those 2028 earnings, down from 22.8x today. This future PE is lower than the current PE for the TR Metals and Mining industry at 22.8x.
• 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 29.79%, as per the Simply Wall St company report.

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

Risks

• Rising global infrastructure spending and renewable energy build-outs are likely to buoy long-term steel demand, supporting Eregli's sales volumes and providing a possible uplift to revenue and earnings over time.
  
• The removal of U.S. steel tariff exemptions for major importers gives Turkish steel producers, including Eregli, more equal access to the U.S. market and could expand export opportunities, underpinning future revenue growth and export margins.
  
• Ongoing capital investments in new production facilities, modernization, energy efficiency, and value-added steel products signal a strategic focus on efficiency and product differentiation, which can strengthen gross margins and long-term earnings resilience.
  
• Maintaining the highest export share in company history-despite challenging conditions-and holding the largest EU quota position enhances geographical diversification and export market stability, helping to offset revenue risk in softer domestic environments.
  
• The company's commitment to a Net Zero Roadmap with substantial transformational investments may allow it to capitalize on future premium markets and gain market share among environmentally conscious customers, protecting long-term margins and supporting sustainable earnings growth.

Valuation

• The assumed bearish price target for Eregli Demir ve Çelik Fabrikalari T.A.S is TRY16.13, which represents two standard deviations below the consensus price target of TRY27.71. 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 more bearish 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 bearish analysts, you'd need to believe that by 2028, revenues will be TRY259.0 billion, earnings will come to TRY34.9 billion, and it would be trading on a PE ratio of 7.1x, assuming you use a discount rate of 29.8%.
• Given the current share price of TRY27.04, the bearish analyst price target of TRY16.13 is 67.6% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.