Dynamic Pricing And 5G Rollout Will Ignite Revenue Growth And Expand Margins

Key Takeaways

• Dynamic pricing and subscriber growth strategies indicate robust future revenue and earnings potential.
  
• Expected 5G rollout and operational efficiency improvements suggest positive impacts on revenue, margins, and market opportunities.
  
• Geopolitical tensions and high inflation in Türkiye may pressure Türk Telekom's revenue, operational costs, and net margins amidst intense telecom market competition.

Catalysts

Provides integrated telecommunication services in Turkey.

• The company's ongoing dynamic pricing strategy, which aims to balance subscriber and ARPU growth, suggests robust future revenue growth, driven by strategic price adjustments in response to market dynamics and inflation trends.
  
• Strong subscriber growth in both mobile and fixed broadband segments, including a record number of postpaid net additions, indicates potential for increased revenue and earnings due to a larger customer base.
  
• An expected continuation of 21% ARPU growth in fixed broadband due to customer demand for higher-speed packages is likely to contribute positively to future revenue and EBITDA margins.
  
• Improving operational leverage and cost management, reflected in a drop in the OpEx-to-sales ratio and expanding EBITDA margins, suggest a potential for enhanced net margins and earnings.
  
• The anticipated 5G rollout by 2026 is expected to open new revenue streams and market opportunities, positively impacting future revenue and potentially improving the company's valuation.

Türk Telekomünikasyon Anonim Sirketi Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Türk Telekomünikasyon Anonim Sirketi's revenue will grow by 41.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 18.2% today to 12.3% in 3 years time.
• Analysts expect earnings to reach TRY 37.4 billion (and earnings per share of TRY 10.77) by about December 2027, up from TRY 19.8 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as TRY 23.5 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.1x on those 2027 earnings, up from 8.3x today. This future PE is lower than the current PE for the TR Telecom industry at 18.7x.
• Analysts expect the number of shares outstanding to decline by 0.22% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 28.54%, as per the Simply Wall St company report.

Türk Telekomünikasyon Anonim Sirketi Future Earnings Per Share Growth

Risks

• Geopolitical tensions in the Middle East and global economic uncertainty could lead to volatility in oil prices, impacting Türkiye's macroeconomic environment and potentially affecting Türk Telekom’s revenue growth projections.
  
• High inflation and interest rates in Türkiye, with the Central Bank maintaining a policy rate at 50%, could increase operational costs and pressure net margins.
  
• The competitive environment in the telecommunications market, illustrated by intense price competition and promotional activities, might lead to higher churn rates and impact revenue and ARPU growth.
  
• Contract restructuring and pricing adjustments, particularly in fixed broadband, may not yield the anticipated subscriber or ARPU growth if demand remains soft and competitors adjust pricing strategies similarly, thus affecting overall revenue.
  
• External macroeconomic factors such as monetary policy shifts, currency volatility, and changes in Turkish corporate tax legislation could adversely affect Turk Telekom's financial costs and net earnings.

Valuation

• The analysts have a consensus price target of TRY 61.32 for Türk Telekomünikasyon Anonim Sirketi 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 TRY 76.6, and the most bearish reporting a price target of just TRY 39.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be TRY 305.6 billion, earnings will come to TRY 37.4 billion, and it would be trading on a PE ratio of 12.1x, assuming you use a discount rate of 28.5%.
• Given the current share price of TRY 46.84, the analyst's price target of TRY 61.32 is 23.6% 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.