Investments In Techfin And Renewables Will Boost Future Potential

Key Takeaways

• Expansion in cloud and data services and 5G rollout aims to drive revenue and profit growth through increased ARPU and subscriber numbers.
  
• Focus on Techfin growth and renewable energy investment may enhance earnings, with a Eurobond issuance bolstering financial strength and growth initiatives.
  
• Intense market competition, economic challenges, and uncertain 5G investments could strain Turkcell's financial resources and impact revenue growth and profitability.

Catalysts

Provides digital services in Turkey, Belarus, Turkish Republic of Northern Cyprus, and the Netherlands.

• The expansion of digital business services, particularly in the cloud and data center segment, is expected to drive revenue growth, with a projected 32%-34% increase in revenue growth from these areas, impacting top line revenue.
  
• The ongoing rollout of 5G technology and the associated increase in bandwidth and potential premium pricing can enhance ARPU and subscriber growth, potentially boosting Turkcell's revenue and profit margins.
  
• The strong performance of the Techfin segment, which includes Paycell and Financell, shows significant growth, supporting top line growth and potentially improving earnings due to higher revenue from transaction volumes and commissions.
  
• Continued investment in renewable energy and solar capacity is aimed at enhancing operational efficiency and potentially reducing costs, thus positively impacting net margins through lower energy expenses.
  
• The issuance of a $1 billion Eurobond, including a sustainable tranche, is expected to provide funds for future growth initiatives and strengthen the balance sheet, potentially leading to higher net income as financing costs decrease and growth initiatives yield higher returns.

Turkcell Iletisim Hizmetleri Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Turkcell Iletisim Hizmetleri's revenue will grow by 30.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.7% today to 16.0% in 3 years time.
• Analysts expect earnings to reach TRY 59.1 billion (and earnings per share of TRY 26.87) by about March 2028, up from TRY 11.1 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 11.1x on those 2028 earnings, down from 19.3x today. This future PE is lower than the current PE for the US Wireless Telecom industry at 21.4x.
• Analysts expect the number of shares outstanding to decline by 0.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 27.67%, as per the Simply Wall St company report.

Turkcell Iletisim Hizmetleri Future Earnings Per Share Growth

Risks

• Intense competition in the mobile market has led to aggressive pricing strategies by competitors, potentially impacting Turkcell's revenue growth and profitability.
  
• Economic factors, such as inflationary pressures and declining purchasing power of consumers, could impact consumer spending and lead to higher churn rates, which may affect revenue growth and net margins.
  
• The uncertainty surrounding the 5G license fees and the potential high investment costs for Turkcell to acquire 5G spectrum and infrastructure could strain financial resources and impact net earnings.
  
• Potential changes in the regulatory environment and the lack of clarity about the tender process for fiber infrastructure and 5G licenses may pose risks to capital expenditures and operational strategy.
  
• Inflationary pressures on operational costs, including energy expenses and wage increases, could lead to margin compression if not managed effectively, impacting EBITDA and net earnings.

Valuation

• The analysts have a consensus price target of TRY145.567 for Turkcell Iletisim Hizmetleri 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 TRY204.4, and the most bearish reporting a price target of just TRY98.6.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be TRY370.3 billion, earnings will come to TRY59.1 billion, and it would be trading on a PE ratio of 11.1x, assuming you use a discount rate of 27.7%.
• Given the current share price of TRY98.3, the analyst price target of TRY145.57 is 32.5% 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.