Future Investments In 5G Infrastructure Will Strengthen Market Position

Key Takeaways

• Continued subscriber growth and price strategy improvements are expected to drive revenue and profitability, especially in postpaid services and dynamic pricing.
  
• Investments in 5G and infrastructure, along with cost optimization, aim to enhance market position, EBITDA margins, and long-term earnings potential.
  
• Trade wars, strong dollar, and high-interest rates could harm Türk Telekom's growth through decreased purchasing power, operational costs, and pressured margins.

Catalysts

Operates as an integrated telecommunication company in Turkey.

• Continued subscriber base expansion and strong ARPU growth, particularly driven by postpaid services and upselling strategies, are expected to support revenue growth in 2025. This relates to potential revenue increases and improved earnings.
  
• Price revisions in fixed broadband and mobile segments, including dynamic pricing strategies, aim to enhance ARPU and revenue growth. This can positively impact revenue streams and possibly improve profit margins.
  
• Significant investments in 5G infrastructure and readiness to participate in the upcoming 5G auction could enhance market position and drive future revenue growth. This relates to potential increases in revenue and earnings.
  
• Management's focus on optimizing cost structures and operational efficiencies is expected to improve EBITDA margins, as evidenced by the 680 basis points expansion seen recently. This can enhance net margins and earnings.
  
• The anticipated renewal of the fixed line concession and strategic shifts towards infrastructure investment provide opportunities for monetization and operational expansion, supporting long-term growth. This could positively affect revenue and earnings in the future.

Türk Telekomünikasyon Anonim Sirketi Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Türk Telekomünikasyon Anonim Sirketi's revenue will grow by 29.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.2% today to 14.2% in 3 years time.
• Analysts expect earnings to reach TRY 49.6 billion (and earnings per share of TRY 11.44) by about March 2028, up from TRY 8.5 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 9.7x on those 2028 earnings, down from 21.5x today. This future PE is lower than the current PE for the TR Telecom industry at 23.8x.
• 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 27.67%, as per the Simply Wall St company report.

Türk Telekomünikasyon Anonim Sirketi Future Earnings Per Share Growth

Risks

• Trade wars, a strong dollar, and the continued high-interest rate environment globally could negatively impact Türk Telekom's revenue and profit growth if they result in decreased consumer purchasing power or higher operational costs.
  
• The competitive environment, particularly in the mobile sector, remains intense with aggressive pricing campaigns, which could pressure Türk Telekom's margins and ARPU (average revenue per user) growth.
  
• Inflationary pressures and subsequent price increases may lead to slower subscriber growth or higher customer churn, impacting revenue growth in both the fixed internet and mobile segments.
  
• The potential for higher CapEx due to upcoming 5G spectrum auction costs and concession renewal fees could strain financial resources and cash flow, affecting net margins and potentially delaying other strategic investments.
  
• Regulatory challenges and the need for a favorable resolution regarding concession agreements and infrastructure ownership could create financial uncertainty and impact long-term earnings stability.

Valuation

• The analysts have a consensus price target of TRY65.894 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 TRY91.0, and the most bearish reporting a price target of just TRY43.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be TRY349.3 billion, earnings will come to TRY49.6 billion, and it would be trading on a PE ratio of 9.7x, assuming you use a discount rate of 27.7%.
• Given the current share price of TRY51.85, the analyst price target of TRY65.89 is 21.3% 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.