Production Upgrades And Energy Transition Will Drive Efficiency

Key Takeaways

• Recent production upgrades and efficiency projects will boost margins, support higher earnings, and reduce reliance on volatile raw material input costs.
  
• Strategic investment in sustainable energy and an EU-focused export strategy enhance revenue diversification and position the company for premium pricing and stable long-term growth.
  
• Revenue and profit face sustained risks from steel overcapacity, domestic market exposure, decarbonization costs, slow efficiency gains, and rising trade protectionism.

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.

• The recently commissioned production assets (two blast furnaces, two coke batteries, and vacuum degassing) are expected to structurally increase efficiency and reduce costs, with a projected $40/ton EBITDA uplift once fully ramped up, directly supporting higher margins and earnings from 2025 onward.
  
• The company's explicit $3.2 billion capital commitment toward energy transition (carbon reduction, energy efficiency, and solar power plants) through 2030 positions it to benefit from a global shift to sustainably sourced steel, likely supporting premium pricing, securing export contracts, and stabilizing long-term revenues.
  
• Erdemir has reached record levels of export share, with volumes up 18% year-over-year and exports now representing 27% of total sales, enabling the company to benefit from ongoing demand growth in infrastructure and urbanization outside Turkey-supporting both revenue diversification and future sales growth.
  
• New investments and operational upgrades (including blast furnaces and energy efficiency projects) will allow the company to rely less on raw material inputs, lessening the impact of input cost volatility and improving net margins even in periods of weak steel prices.
  
• The company's strategy to maintain export focus on the EU – where demand for eco-friendly and high-quality steel products is expected to rise due to infrastructure and green energy investments – enhances long-term revenue potential and reduces exposure to Turkish macroeconomic risk.
  

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

Assumptions

• Analysts are assuming Eregli Demir ve Çelik Fabrikalari T.A.S's revenue will grow by 15.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.6% today to 12.2% in 3 years time.
• Analysts expect earnings to reach TRY 36.8 billion (and earnings per share of TRY 3.33) by about August 2028, up from TRY 5.2 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.2x on those 2028 earnings, down from 37.3x today. This future PE is lower than the current PE for the TR Metals and Mining industry at 36.9x.
• 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 30.45%, 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, weak demand growth, and persistent downward pressure on HRC (hot-rolled coil) prices-exacerbated by muted recovery in China and enhanced protectionist trade measures in Europe and the US-raise the risk of chronically depressed revenues and tighter margins, directly impacting the company's top line and EBITDA.
  
• Eregli Demir ve Çelik Fabrikalari T.A.S. derives 75% of its revenue from the domestic Turkish market, exposing it to domestic economic volatility, policy risk, and potential currency depreciation, all of which could erode USD-denominated revenues and net profit.
  
• The company's large-scale decarbonization and net zero investment roadmap relies on $3.2 billion of capex by 2030, with most funding sourced externally. Delays in execution, increases in borrowing costs, or tighter funding conditions could weigh heavily on net margins and increase leverage, especially as rising compliance costs from stricter EU carbon regulations (e.g., CBAM) threaten profitability.
  
• The anticipation of efficiency gains and cost reductions from new blast furnaces, coke batteries, and energy investments is subject to learning curves, unforeseen operational complications, and slower ramp-up. If these gains take longer than projected, this could delay expected improvements in EBITDA and restrict earnings growth, particularly amid falling steel prices.
  
• Escalating trade barriers, evolving quota systems (particularly in the EU), and competition from Asian producers seeking alternative markets may gradually reduce Turkish export growth and compress future sales volumes, amplifying the risk of revenue stagnation and margin pressure in an already competitive global steel environment.

Valuation

• The analysts have a consensus price target of TRY29.018 for Eregli Demir ve Çelik Fabrikalari T.A.S 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 TRY39.7, and the most bearish reporting a price target of just TRY16.09.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be TRY302.6 billion, earnings will come to TRY36.8 billion, and it would be trading on a PE ratio of 12.2x, assuming you use a discount rate of 30.4%.
  
• Given the current share price of TRY27.86, the analyst price target of TRY29.02 is 4.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.