Equity / Large Cap.

/ Food
19/06/2015

Ulker Biskuvi

OUTPERFORM

Company Update

(Previous: O.P)
Upside Potential
23%

Tap into the growth

Ticker

ULKER

Outperform recommendation reiterated with 23% upside potential

Following the revisions in our macro estimates post election and updated
peer group multiples, we reiterate our OUTPERFORM recommendation for
ULKER since our updated target price of 22.6TL/share offers 23% upside
potential. We like mid-to-long term growth prospects of the company as
being the dominant player in fast growing domestic confectionery market.
Potential entry to underpenetrated markets through planned acquisitions
and further room for margin expansion thanks to on-going SKU optimization
and contribution of synergies with United Biscuits, especially on the
procurement are the key positives.

Stock Data
Price at 18 06 2015
Target Price
Prev.Target Price
Mcap (mn)
Float Mcap (mn)
Avg.Daily Volume (3M, mn)
No. of Shares Outstanding (mn)
Free Float (%)
Multiples
2015E

TL

US$

18.35
22.60
22.60
6,276
2,694
14.5

2016E

6.75
8.69
8.69
2,310
991
5.4
342
42.92
2017E

29.8
4.3
16.8

19.3
3.8
12.0

17.2
3.5
10.7

1 Mn

3 Mn

12 Mn

-7
-12
0

-7
-12
-5

5
-17
0

P/E
ULKER trades at a discount based on its 12.0x 2016E EV/EBITDA and P/BV
19.3x P/E vs its international peers median of 12.9x and 22.7x, EV/EBITDA

respectively.
Price Perf. (%)

Price adjustments limited the volume growth in domestic market

TL
In order to reflect increased cost-base on the back of higher cacao and US$
palm oil prices in 2014 due to drought and Ebola worries, Ulker has made Relative to BIST-100

price increases (c.16% YoY in domestic market) at every category which in

turn limited the volume growth in domestic market in 1Q15. Accordingly,
Price / Relative Price
consolidated volume was down by 7.5% in 1Q15 which was partially due to
carry on price increases. Besides, export volume contracted sharply by 26.20
32% YoY due to turmoil in Iraq and Yemen.
21.20
Domestic demand is expected to accelerate in 2H15

ULKER Cl ose (LHS)

52 Week Range (Close TL)

2.17

Foreign Sh are (%)

3M Ave rage

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05/06

22/05

07/05

21/04

07/04

35

Major risks to our call: Lower than estimated growth in domestic market,
delay or higher than expected acquisition price in Saudi Arabia and Egypt
and failure to achieve the targeted margin improvement are the major risks
to our call.
Please refer to important disclaimer at the end of this report.

4.72

36

24/03

Following sharp increase in 2014, cacao and palm oil prices are eased in
2015 thanks to increases in the level of supply. The positive impact of this
will be mostly compensated by dollar appreciation, taking its toll on the
margins. However, SKU optimization and lower G&A expenses will help the
company to improve its EBITDA margin. Accordingly, we estimate TL3.1bn
revenues in 2015 along with 12.5%EBITDA margin.

04/15

Relative to BIST1 00

We believe that the companys strategy to cater into underpenetrated

markets like S.Arabia and Egypt will be positive in the mid-term since these Foreign Share (%)
markets offers significant growth potential. The company targets to finalize
38
stake purchase at Egypt venture in 1H15 and S.Arabia acquisition is
projected to be completed until the end of 2015.
37
Stable cacao and palm oil prices is a positive factor, yet dollar
appreciation will eliminate the positive impact

01/15

10/14

07/14

04/14

01/14

10/13

07/13

04/13

Yldz Holdings Egypt and Saudi Arabia ventures are the initial
acquisition targets

01/13

16.20

We expect domestic consumption to accelerate in the remainder of the year

11.20
and assume domestic sales volume to increase by 5% YoY in 2015. Hence,
consolidated revenues are expected to grow 9% YoY in 2015. In addition to 6.20
that, the company also looks for inorganic growth opportunities in MENA 1.20
region in order to capture high growth potential in underpenetrated markets.

240
220
200
180
160
140
120
100
80

Ilyas Safa Urganci

iurganci@isyatirim.com.tr
+90 212 350 25 52

Ulker Biskuvi
Summary of Key Financials (TL mn)
2
3
Sum m ary of Key Financials (TL m n)
Incom e Statem ent (TL m n)
2013A* 2014A*
Revenues
2,748
2,891
EBITDA
315
332
Depreciation & Amortisation
52
54
EBIT
263
277
Other income (expense), net
49
8
Financial expenses, net
(240)
(121)
Minority Interests
39
23
Income before tax
279
263
Taxation on Income
(52)
(28)
Net income
189
212
Cash Flow Statem ent (TL m n)
Net Income
189
212
Depreciation & Amortisation
52
54
Indemnity Provisions
10
13
Change in Working Capital
113
34
Cash Flow from Operations
364
313
Capital Expenditure
70
92
Free Cash Flow
294
221
Rights Issue
0
0
Dividends Paid
150
133
Other Cash Inflow (Outflow )
(5)
(293)
Change in net cash
139
(206)
Net Cash
(95)
(300)
Balance Sheet (TL m n)
Tangible Fixed Assets
543
580
Other Long Term Assets
25
41
Intangibles
1
1
Goodw ill
0
0
Long-term financial assets
465
529
Inventories
198
212
Trade receivables
649
604
Cash & equivalents
1,165
1,035
Other current assets
116
186
Total assets
3,162
3,188
Long-term debt
10
1,244
Other long-term liabilities
57
57
Short-term debt
1,250
91
Trade payables
508
511
Total Debt
1,260
1,335
Other short-term liabilities
68
55
Total liabilities
1,894
1,958
Minority Interest
138
92
Total equity
1,130
1,138
Paid-in capital
342
342
Total liabilities & equity
3,162
3,188
Ratios
ROE (%)
18.1
18.7
ROIC (%)
22.4
24.2
Invested Capital
907
927
Net debt/EBITDA (x)
0.3
0.9
Net debt/Equity (%)
8.4
26.4
Capex/Sales (%)
2.55
3.20
Capex/Depreciation (x)
1.4
1.7
EBITDA Margin
11.5
11.5
EBIT Margin
9.6
9.6
Net Margin
6.9
7.3
Valuation Metrics
EV/Sales (x)
2.0x
2.2x
EV/EBITDA (x)
17.2x
19.4x
EV/IC (x)
6.0x
6.9x
P/E (x)
24.4x
25.7x
FCF yield (%)
6%
4%
Dividend yield (%)
3%
3%
*based on average Mcap during the year

4
5
2015E 2016E
3,141 4,129
391
548
86
86
305
462
116
153
(158) (208)
0
0
264
407
(53)
(81)
211
326

6
2017E
4,646
615
96
518
172
(234)
0
457
(91)
365

211
86
0
(41)
256
79
177
0
94
(80)
2
(298)

326
86
0
(126)
286
96
189
0
148
(115)
(73)
(371)

365
96
0
(63)
398
106
292
0
228
(50)
14
(357)

573
50
1
1
529
226
665
1,124
188
3,523
1,492
60
(70)
545
1,422
12
2,076
100
1,447
342
3,523

583
66
1
1
529
285
874
1,477
247
4,281
1,791
64
58
687
1,848
7
2,644
112
1,637
342
4,281

593
75
1
1
529
318
983
1,662
278
4,684
2,149
68
(130)
765
2,019
4
2,897
125
1,787
342
4,684

16.3
25.7
971
0.8
20.6
2.51
0.9
12.5
9.7
6.7

21.1
35.3
1,123
0.7
22.7
2.33
1.1
13.3
11.2
7.9

21.3
35.7
1,204
0.6
20.0
2.28
1.1
13.2
11.2
7.9

2.1x
16.8x
6.8x
29.8x
3%
1%

1.6x
12.0x
5.9x
19.3x
3%
2%

1.4x
10.7x
5.5x
17.2x
5%
4%

Company Overview
Production of biscuits, chocolate, chocolate
covered biscuits, w afers, cakes and
crackers. Sells its products throughout
Turkey and exports to more than 80
countries
including Germany, France,
Southern/Eastern Europe/CIS and the Middle
East.

Shareholder Structure

43.0%
57.0%

Yldz Holding&Subsidiaries&Family Members

Free Float

2
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Ulker Biskuvi

Valuation

Our target price of TL22.60/share offers 23% upside potential. Following updated macro
estimates and peer group multiples, we have revisited our valuation for ULKER and came up with a
new 12 month target equity value of TL7,725mn, implying 23% upside potential. We attach 70%
weight to the DCF in our blended peer + DCF valuation analysis, as DCF better captures the value
creation from the acquisition of international businesses and medium term EBITDA margin
improvement. Therefore, we reiterate our OUTPERFORM recommendation for ULKER shares and
added the stock to our Most Recommended List.
FIGURE 1: DCF Valuation Summary
TL m n

Valuation Method

Core Business Equity Value

DCF

Weight
70%

8,154

Peer Comparison

30%

5,962
7,497

Blended Value
G New Inc.

Book Value

19,23%

176

Godiva Belgium BVBA

Book Value

19,23%

323

Target Mcap

0,20%

32

BIM
Total Participations w ith 5% discount

505

Minority Shares (26.1% Biskot + %8 Ulker Cikolata)

276

Target Value

7,725

Target Price

22.6

Current Price

18.4

Upside Potential

23%

Source: Is Investment Estimates

DCF valuation implies 37% higher value than peer valuation analysis. Our DCF valuation signals
an EV of TL8,154mn which is 37% higher than the peer valuation analysis. We used 9.6% WACC in
our valuation taking 9% risk free rate, 5% equity risk premium and 0.5 Beta. We used 2015&16 EV/
EBITDA multiple of international peers 14.4x and 12.9x to reach our multiple based target value.

FIGURE 2: DCF Valuation Summary

DCF TL m n

2012A

Net Sales

2013A 2014A 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E

2,341

2,748

2,891

3,141

4,129

4,646

5,169

5,712

6,251

6,824

7,490

Gross Profit

503

633

608

681

1,051

1,213

1,370

1,540

1,710

1,879

2,093

EBIT

171

263

277

305

462

518

612

729

836

931

1,044

Tax on EBIT

-34

-53

-55

-61

-92

-104

-122

-146

-167

-186

-209

Depreciation
EBITDA
EBITDA margin
Change in Working Capital

48

52

54

86

86

96

101

130

114

119

127

219

315

332

391

548

615

714

859

950

1,050

1,172

14

-27

34

-41

-126

-63

-62

-69

-63

-68

-81
-267

-42

-88

-102

-171

-106

-127

-147

-237

-215

-204

Free Cash

156

148

209

118

223

321

382

408

505

592

9.46%

9.8%

8.8% 11.0% 10.5% 10.1%

9.6%

9.6%

9.2%

8.7%

8.7%

156

148

266

259

294

314

298

DCF
Terminal Grow th Rate
Terminal Value
Enterprise Value
Net Debt 2014(- acquisition costs)
Equity Value

12%

9.3% 11.5% 11.5% 12.5% 13.3% 13.2% 13.8% 15.0% 15.2% 15.4% 15.6%

Capex

Wacc

TV

209

108

186

245

4%
6540
8,449
-551
8,154

Source: Is Investment Estimates

3
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614 13,481

6540

Ulker Biskuvi
Trades discount vs its international peers
ULKER trades at a discount based on its 12.0x 2016E EV/EBITDA and 19.3x P/E vs its international
peers median of 14.4x and 22.7x, respectively.
FIGURE 3: Peer Comparison
Company

Company

ULKER
Turkey Avg.
Disc./Prem.
Peer Com p.avg.
Peer.Comp.
LOTB BB Equity
THT LN Equity
MYOR IJ Equity
2206 JT Equity
PETRA SP Equity
NESN VX Equity
LISP SW Equity
HSY US Equity

Country

Mcap mn$

ULKER BISKUV

TURKEY

2,313

Company
LOTUS BAKERIES
THORNTONS PLC
MAYORA INDAH
EZAKI GLICO
PETRA FOODS LTD
NESTLE SA-REG
LINDT & SPRUE-PC
HERSHEY CO/THE

Country
BELGIUM
BRITAIN
INDONESIA
JAPAN
SINGAPORE
SWITZERLAND
SWITZERLAND
UNITED STATES

Mcap mn$
935
44
1,700
3,366
2,133
242,440
14,008
20,360

2015
29.8
29.8
23%
24.22
2015
25.8
13.3
27.9
21.2
31.9
20.5
31.7
21.5

P/E
2016
19.3
19.3
-15%
22.68
2016
24.4
11.3
20.4
30.9
27.0
19.1
28.6
19.8

2017
17.2
17.2
-13%
19.77
2017
9.2
17.6
27.5
22.4
17.6
25.8
18.3

Source: Bloomberg and Is Investment Estimates

4
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EV/EBITDA
2015
2016
16.8
12.0
16.8
12.0
17%
-6%
14.35
12.85
2015
2016
15.7
14.9
5.8
5.2
13.6
11.0
14.9
13.0
17.6
15.0
13.5
12.8
20.8
18.9
12.8
12.0

2017
10.7
10.7
-6%
11.40
2017
4.7
9.8
11.8
12.6
12.0
17.3
11.5

Ulker Biskuvi

Financial
Analysis

Domestic sales volume is expected to accelerate in 2H15. Consolidated volume was down by
7.5% in 1Q15 which was partially due to carry on price increases, weaker exports and SKU
optimization in Biskot. However, we estimate domestic sales volume to accelerate 2H15 thanks to
increased consumer appetite and sequential price increases by the competitors.
FIGURE 4: Domestic Confectionery Market Growth vs Ulker Sales Volume Growth
8.3%

8.1%
5.6%

5.5%

5.8%

5.5%

2.8%

1Q14

2Q14

3Q14
-4.0%

4Q14
-2.6%

1Q15

-7.5%
Market Growth Trend
Source: Company Presentation

Ulker Sales Volume Growth

Revenues set to grow 17% CAGR over the next three years thanks to 6% average growth rate at
domestic confectionery market and contribution of planned acquisitions in Egypt and Saudi Arabia.
The company will look for other acquisition opportunities in the region as well as a strategy.
FIGURE 5: Revenue Growth Projection - mn TL
447

694*

4,646

Acquisitions

2017E

614
2,891

2014

Biscuits&Cakes

Chocolate

* Acquisitions are estimated to contribute financials in 2016

Source: Is Investment Estimates

We estimate consolidated EBITDA margin to improve 13.2% in 2017 on the back of reduction in
sales discounts, SKU optimization and lower marketing expenses. The planned acquisition will make
a dilutive impact in the short-term on consolidated figures, yet still we deem that they will contribute to
the profitability as well following the restructuring after the acquisitions.

2014

Reduction in sales
discount

0.5%

0.4%

Better cost & op-ex

management

0.8%

Category mix/New
launches

11.5%

Source: Is Investment Estimates

5
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2017E

13.2%

FIGURE 6: EBITDA Margin Projection

Ulker Biskuvi
Saudi Arabia and Egypt are fast growing markets in the region. We incorporate Egypt and Saudi
Arabia ventures to the model, assuming an acquisition multiple of 1.0x 2015EV/ Sales, using the
similar transactions as benchmark. They are estimated to contribute TL900mn to Ulkers top line over
the next three years.
Egypt confectionery market is c.US$1.8bn and grows c.7% every year.
Yildiz Holding operates in Egypt through Hi Food which produces biscuits. Hi Food has a production
capacity of 27.5K tonnes. 54% of Hi Food is owned by a local partner while the remaining 46% stake
owned by Yildiz Holding. Hi Foods generated US$42mn revenues along with 9% EBITDA margin in
2014 and projects to generate the same amount of turnover in 2015 as the demand were weaker due
to political unrest in the country.
Saudi Arabia confectionery market is c. US$2.6bn and grows c.8% on annual basis. Low per
capita consumption especially in chocolate category with 1.6kg accompanied by increased consumer
spending and organized retailing channels is expected to spur the growth in the country. Yildiz
Holding operates in Saudi Arabia through FMC which produces biscuits, chocolate and cakes.
Established in 2000, 45% of FMC is owned by a local partner while Yildiz Holding holds 55% stake.
FMC has a production capacity of 43K tons and reaches c.10K sales points in the country holding 8%
market share in biscuits and 1% market share in chocolate market. FMC has managed to raise its
revenues to US$103mn with 9% EBITDA margin in 2014 and projects to generate US$120mn
revenues with 10% EBITDA margin in 2015.
FIGURE 7: Market Size
(US$mn)

FIGURE 8: Company Financials

Market size

Growth

Egypt

Per

(US$ mn)

2013

2014

2015E

Capita Consumption Hi Food (Egypt)

Chocolate

408

5.3%

0.4

Net Sales

Biscuits

869

9.4%

2.9

EBITDA Margin

Saudi Arabia
Chocolate
Biscuits

36

42

42

18%

13%

13%

FMC (S.Arabia)
1117

9.7%

2.1

Net Sales

91

103

120

752

5.6%

3.7

EBITDA Margin

6%

9%

10%

Source: Euromonitor

Source: Company Presentation

Godiva stake sale might be another catalyst for the stock. Ulker Biskuvi acquired 25,2% of
Godiva (dropped its share to 19.23% after 6% stake sale to Yldz Holding), leading premium
chocolate producer with significant brand equity globally, for US$ 240mn back in 2008. The company
used US$ 240mn bank loan to finance Godiva acquisition, but paid back in June, 2010 in order to
take advantage of the early payback option. Godiva almost doubled its revenues since 2008 and has
reached US$732mn revenues in 2014 (along with 6.6% EBITDA margin) from US$470mn in 2008.
The company currently has 444 retail shops in 100 different countries. Godiva plans to open 50 new
stores annually and reach US$1.0bn revenues along with US$120mn EBITDA over the next three
years. We attach US$185mn value to 19.23% stake of Godiva, implying US$974mn value for the
whole company. A possible stake sale scenario at peers average 2017 EV/EBITDA multiple of 9.8x
implies a value of US$1.2bn, 21% higher than our estimate.
FIGURE 9: GODIVA Key Figures
Godiva
# of stores
Revenues - mn US$
EBITDA
EBITDA Margin

2008
432
470
0

2013
439
680
42
6.2%

2014
444
732
48
6.6%

Source: Company Presentation

Carries TL359mn short f-x position. Ulker carries TL359mn short f-x position due to US$
denominated loans as a result of company strategy. The company incurs f-x losses in case of TL
depreciation against US$.

6
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Communication

Auto part

OP

MP

UP
Chemicals

UR

NR

Real Estate Investment Trust

Banking

Conglomerate

Airlines&Ground Handling

Utilities

12M Trailing P/E

Transportation

0.40

Sectoral Recommendations

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Estimated Forward P/BV

Source : BIST/ Is Investment Estimates

OUTPERFORM
NOT RATED
MARKETPERFORM

2.40

Current P/BV

Rec. Breakdown for Coverage (%)

Number of
Companies

30

47

16

UNDER REVIEW
UNDER PERFORM

29/04/2015

2.90

14.00

08/04/2015

16.00

18/03/2015

Estimated Forward P/BV & Current P/BV

25/02/2015

Estimated Forward P/E & 12M Trailing P/E

04/02/2015

14/01/2015

24/12/2014

03/12/2014

04/15

04/15

03/15

02/15

01/15

01/15

12/14

11/14

11/14

10/14

09/14

09/14

08/14

07/14

07/14

06/14

05/14

04/14

04/14

03/14

02/14

02/14

01/14

12/13

12/13

11/13

10/13

10/13

09/13

08/13

07/13

07/13

06/13

05/13

UR

OP

OP
OP

OP

OP

OP
OP
OP

UP

OP

OP

MP
OP

OP

OP
OP
OP

UR

0
OP

20

05/13

40

04/13

03/13

03/13

60

12/11/2014

22/10/2014

01/10/2014

10/09/2014

20/08/2014

30/07/2014

09/07/2014

18/06/2014

28/05/2014

07/05/2014

29/04/2015

08/04/2015

18/03/2015

25/02/2015

04/02/2015

14/01/2015

24/12/2014

03/12/2014

12/11/2014

22/10/2014

01/10/2014

10/09/2014

20/08/2014

30/07/2014

8.00

Retail Trade

4.00

09/07/2014

12.00

Mining

Construction

Food

Cement & Concrete

Glass

Pharmaceutical and Health

Petroleum and Energy

Estimated Forward P/E

Source : BIST/ Is Investment Estimates

Livestock

Other

Iron Steel

Integrated Textile

Agricultural Chemicals

Insurance

0.90

18/06/2014

02/13

01/13

80

Tyre Production

Automotive & Parts

6.00

28/05/2014

01/13

100

Beverages

07/05/2014

TL

Media

Information Machines

Consumer Durables

120

Leasing & Factoring

Ulker Biskuvi

Price / Recommendations

Relative to BIST1 00

Source : BIST/ Is Investment Estimates

10.00
1.90

1.40

Ulker Biskuvi

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