Bank initiates Turkish Tekfen's coverage with 'Buy' rating

27 March 2013 17:01  [Source: ICIS news]

LONDON (ICIS)--Erste Group Bank on Wednesday has initiated coverage of Turkey's Tekfen Holding with a 'Buy' rating, noting investments at its Toros Tarim fertilizer unit should boost margins in coming years.

The earnings before interest, tax, depreciation and amortisation (EBITDA) margin of Toros Tarim – Turkey's leading fertilizer producer with a 38% share of the country's production capacity of 2m tonnes/year – is forecast by Erste to improve to 13% in 2017 from an estimated 8.1% in 2012.

In an analysis of Tekfen issued with its stock rating, Erste analyst Sezai Saklaroglu said: “Tekfen’s fertilizer arm has both semi-integrated production facilities and trading activities. As a semi-integrated fertilizer producer, the company is able to produce nitric acid and phosphoric acid in its facilities, which enables the company to work on relatively high operating margins.”

Toros Tarim, which currently has to import phosphoric acid from Morocco for its fertilizer plant in Ceyhan, southern Turkey, is aiming to become self-sufficient in the feedstock, the analyst said.

A $300m (€234m) investment in securing intermediate goods for fertilizer production and increasing integration levels includes a project to raise the phosphoric acid capacity of Toros Tarim's Samsun fertilizer plant, on the northern coast of Turkey, to 200,000 tonnes/year.

Such a capacity would be sufficient to cover the needs of both the Samsun and Ceyhan plants, Saklaroglu said.

“The company expects that there will be some constraint in the phosphoric acid supply in coming years or that it will be very expensive since most acid producers want to sell DAP rather than acid,” he added.

Producers including Toros Tarim, which has a third fertilizer plant, located in Mersin on the southern coast of Turkey, enjoyed strong growth of the Turkish fertilizer market last year, the analyst said.

Year on year, consumption grew 10%, reaching 5.3m tonnes, he added.

“Despite the jump in consumption, domestic production declined slightly to 3.6m tonnes in 2012 from 3.7m tonnes in 2011,” Saklaroglu said.

“We expect fertilizer consumption to contract by 3% in 2013 and decline to 5.1m tonnes on front-loaded demand in 2012 [because] we believe that declining prices, especially in urea and ammonia in Q4 2012 pulled the domestic demand forward,” he added.

Tekfen Holding, established in 1956 as an engineering consultancy, has agri-industry, construction, real estate and other businesses.

Its net profit improved in 2012 to Turkish lire (TL) 380.5m from in TL242.4m 2011, with net sales growing to TL4.0bn from TL3.2bn.

($1 = €0.78, $1 = TL1.81, €1 = TL2.33)

By: Will Conroy
+44 20 8652 3214

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