Banvit

Zorlu Enerji
TRSZORN81616
March 30, 2015
Banvit
Market Perform (Prev. Outperform)
 We are changing our recommendation for Banvit from OP to MP
due to its recent strong performance
Share Price
12M Target Price
Potential Return
TL2.60
TL3.10
19%
Mcap
TL260m n
 Following the news regarding a possible partnership, the stock
outperformed the XU100 index by 17% over the last week.
 We expect an improvement in the turnover and margins this year
with the low base impact. That said, we believe a better 2016 has
already been priced in.
Banvit’s stake sale process has commenced. Banvit decided to
start negotiations with potential investment groups for private
placement or a partnership agreement. The Company has been
evaluating strategic partnership opportunities for a while. However,
no concrete decision regarding the stake sale has been made so far.
Recall that we considered strategic partnership opportunities as a
catalyst for the stock in our report in January 2016. A capital injection
through a stake sale is set to lower Banvit’s high leverage, which
seems to be the major risk factor. Although there is currently no
information regarding the interested parties, we still expect the deal
to finalize in 2016.
Banvit’s 58.3% is controlled by family members. Aabar investment,
an Abu Dhabi based investment company, has a 16.3% stake in
Banvit. The rest is in free float. Aabar investment purchased a 16.3%
stake (16.3mn shares) in Banvit in August 2011 for USD45mn
(TL78mn), leading to TL4.8/share. During this process, it is probable
that Aabar will fully divest its 16.3% stake since the fund’s main focus
has moved towards different industries like real estate and energy,
rather than the food sector in the meantime.
A challenging year is behind; growth is on the way. The avian flu
outbreak, weak consumer sentiment and an oversupply with the
cessation of Turkish poultry imports to Iraq have drastically hurt
demand and accordingly poultry prices came down in 2015. Banvit
recorded a mere 3% growth in 2015, the lowest in the last seven
years. We expect the growth outlook to recover in 2016 with
improved pricing and volumes and the low base impact.
Mid-term prospects are uplifting. We project 17% revenue growth
and a 23% EBITDA CAGR between 2015 and 2018E with a better
outlook due to better pricing environment and relatively stabilized raw
material costs in the medium-term.
Catalysts: i) Penetration into new potential export regions (Saudi
Arabia and Europe), ii) easing in raw material costs and favorable
sales prices and iii) a change in regulations supporting food
producers.
Valuation: We are changing our Outperform recommendation for
Banvit to Market Perform following the stock’s 17% outperformance
vis-à-vis the index in the last week. Our 12-month target price is
TL3.10, indicating a 19% upside potential.
Risks: Volatility in commodity prices, a high leverage (a TL468mn
total financial loan; 4.9x net debt/EBITDA as of YE15), FX exposure,
epidemics, regulatory changes & instability in its operating markets.
EV
USD91m n
TL728m n
Stock Market Data (January 13, 2016)
Bloomberg/Reuters:
BANVT.TI / BANVT.IS
Rel. Performance:
1 mth
3 mth
7%
-4%
12M Range (TL):
12mth
1%
2.02 / 3.05
Average Daily Vol (TLmn) 3 mth:
2.2
YTD TL Return:
2%
Beta (2year, w eekly)
0.74
Weight in BIST-100
0.00
Shares Outstanding (mn):
100.0
Foreign Ow n. in Free Float :
Current
12M ago
15%
17%
The Company in Brief
Banvit, established in 1968, is involved in the production and
sale of poultry-based food products, animal feed, as w ell as
animal slaughtering and processing. Banvit has production
facilities in Bandirma, Izmir, Eskisehir and Romania. Banvit's
Bandırma and Izmir plants have a total poultry, turkey, red meat
and further processed meat production capacity of 230K
tons/year. Exports, mainly to Iraq, constitute around 10% of
Banvit's consolidated revenues.
Shareholders Structure
Vural Görener
Emine Oksan Kocman
24.83%
19.0%
Aabar Investments PJS
16.3%
Emine Esra Gorener Christoffel
14.5%
Financials and Ratios
2014
2015
2016E
2017E
Net Sales (TLmn)
1,936
2,001
2,360
2,761
53%
3%
18%
17%
127
101
147
179
54%
-21%
46%
22%
YoY
EBITDA (TLmn)
YoY
Net Income (TLmn)
YoY
EBITDA margin
-21
-100
7
12
n.m.
n.m.
n.m.
n.m.
6.6%
5.0%
6.2%
6.5%
Net margin
n.a
n.a
0.3%
0.4%
P/E (x)
n.m.
n.m.
35.1
22.6
EV/EBITDA (x)
5.7
7.2
4.9
4.1
EV/Sales (x)
0.4
0.4
0.3
0.3
EPS
n.m.
n.m.
n.m.
0.12
DPS
0.00
0.00
0.00
0.00
Div. Yield
0.0%
0.0%
0.0%
0.0%
ROE
n.m.
n.m.
n.m.
5%
Analyst: Irem Okutgen
Sales Contact:
+90 (212) 384 1135
+90 (212) 384 1155-58
iokutgen@garanti.com.tr
icm@garanti.com.tr
Banvit
March 30, 2016
RESEARCH
SUMMARY FINANCIALS (TLmn)
Income Statement
Net Sales
Operating Expenses
Operating Profit
Consolidated EBITDA
Net Other Income/ Expense
Profit (Loss) from Subsidiaries
Net financial Income/ Expense
Profit (Loss) before Tax
Tax
Minority Interests
Net Income
2014
1,936
253
41
127
6
0
-72
-23
2
0
-21
2015
2,001
211
1
101
6
0
-93
-125
24
0
-100
2016E
2,360
302
49
147
6
0
-64
-15
16
0
7
2017E
2,761
371
70
179
6
0
-50
20
-14
0
12
EBIT Margin
EBITDA Margin
Net Income Margin
13.1%
6.6%
n.m.
10.6%
5.1%
n.m.
12.8%
6.2%
0.3%
13.4%
6.5%
0.4%
Sales Growth
EBITDA Growth
Net Income Growth
16.9%
47.8%
n.m.
3.4%
n.m.
n.m.
17.9%
45.8%
n.m.
17.0%
21.6%
55.5%
Balance Sheet
2014
2015
2016E
2017E
Current Assets
Cash and Cash Equivalents
Short-Term Trade Receivables
Inventories
Other Current Assets
Long Term Assets
Total Assets
Short Term Liabilities
Short-Term Financial Loans
Short-Term Trade Payables
Other Short-Term Liabilities
Long Term Liabilities
Long-Term Financial Loans
Other Long-Term Liabilities
Shareholders Equity
T. Liabilities & S.holders Equity
635
26
256
311
149
354
989
741
508
211
3
156
117
28
92
989
439
17
186
208
117
612
1,051
729
468
241
4
103
18
68
219
1,051
625
15
226
282
101
579
1,205
785
481
282
5
193
103
74
226
1,205
698
23
265
327
81
556
1,254
814
462
327
5
202
107
80
238
1,254
Cash Flow Summary
2014
127
-50
70
-46
-46
0
-41
83
2015
101
-204
-103
-43
-43
0
-130
139
2016E
147
73
211
-59
-59
0
100
-159
2017E
179
38
204
-83
-83
0
-23
-114
4.7
6.5
-2.2%
-10.5%
16.7%
19.2%
n.m.
4.6
2.1
-2.9%
3.7%
0.2%
0.2%
n.m.
3.9
2.5
-3.5%
1.6%
11.8%
12.3%
1.9%
3.0
2.3
0.0%
0.0%
15.9%
17.0%
16.2%
Ratios
EBITDA
WC Change
Operating Cash flow
Capex
Investing cash flow
Dividends paid
Change in net debt
CF from financing activities
Key metrics
Net Debt/EBITDA (x)
Net Debt/Equity (x)
Capex/Sales (%)
WC Change/Sales (%)
ROCE (%)
ROIC (%)
FCF yield (%)
2
Please see the last page of this report for important disclosures.
Banvit
March 30, 2016
RESEARCH
VALUATION
Our 12-month target Mcap of TL310mn for Banvit is derived from a blend
of DCF analysis and international peer group comparison. We assigned a
75% weighting to DCF analysis as it better captures the Company’s longterm expansion strategies and the diversification of its engagements. We
allocated a 25% weighting to the value obtained from the peer multiple
analysis considering the disparities between Banvit’s business model
versus its peer universe.
Valuation Summary
Calculated Value
Weight in
Valuation
Total Value
DCF Analysis
303
75%
227
Peer Comp.
333
25%
TLmn
83
Target Value
310
Current Mcap
270
12M Target Price (TL)
3,10
Current Share Price (TL)
2.60
Upside Potential (TL)
19%
DCF Valuation
We calculated a target value of TL303mn for Banvit based on our DCF
analysis, assuming a 3% terminal growth rate in our DCF model. We
applied 10% as the risk free rate, while assuming a market risk premium
of 5.5% in calculating the cost of equity. Accordingly, we assume a 12%
WACC for Banvit’s cash flows.
Assumptions and Results (TLmn)
Weight of equity
Cost of Equity
Beta
45%
16%
PV of FCF
PV of Terminal Value
1.0
Implied Firm Value
Risk free rate
10%
Net Cash
Market Risk Premium
5.5%
Target Mcap
Cost of Debt
12%
Tax rate
20%
WACC
12%
Terminal Value Growth
324
447
771
-468
303
3%
3
Please see the last page of this report for important disclosures.
Banvit
March 30, 2016
RESEARCH
DCF Analysis
Banvit - Free Cash Flow Projections (TLmn)
Revenues
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2,360
2,761
3,209
3,718
4,296
4,954
5,595
EBIT
49
70
91
115
137
163
202
Taxes (-)
10
14
18
23
27
33
40
NOPLAT
39
56
73
92
110
131
162
Depreciation
98
109
120
132
144
156
165
137
165
193
224
254
287
327
Change in WCR (-)
73
38
81
55
62
71
69
Capex (-)
59
83
96
112
129
149
168
5
44
16
58
63
67
90
147
179
211
247
282
319
367
6.2%
6.5%
6.6%
6.6%
6.6%
6.4%
6.6%
Gross cash flow
Free Cash Flow
EBITDA
EBITDA Margin
Source: Garanti Securities
4
Please see the last page of this report for important disclosures.
Banvit
March 30, 2016
RESEARCH
Peer Group Comparison
Our peer group comparison implies a fair equity value of TL333mn for Banvit with equal weighting given
to valuations derived from the average 2016E - 2017E EV/EBITDA and P/E multiples of international
peers.
Company
Country
NH Foods Ltd
MCAP (US$ mn)
EV/EBITDA
P/E
EV/Sales
2016E
2017E
2016E
2017E
2016E
2017E
Japan
4,482
9.68
9.08
17.88
16.78
0.50
0.49
Sanderson Farms Inc
United States
2,037
6.12
6.55
15.01
15.46
0.69
0.64
Astral Foods Ltd
South Africa
310
6.66
4.45
10.59
8.76
0.37
0.37
RCL Foods Ltd
South Africa
812
8.61
7.13
12.69
10.79
0.64
0.61
Atria Oyj
Finland
271
5.14
4.85
10.68
9.49
0.33
0.33
Tat Gida
Turkey
279
9.52
8.02
10.17
9.72
0.83
0.72
Pinar Et
Turkey
168
7.66
7.41
8.09
8.03
0.75
0.68
BANVT Multiple Valuation (US$mn)
168
177
27
37
246
262
Average (US$mn)
102
Source: Garanti Securities
5
Please see the last page of this report for important disclosures.
Banvit
March 30, 2016
RESEARCH
4Q15 Financial Results
 Banvit recorded a TL47mn net loss in 4Q estimate given the slump in
its operational performance in a seasonally weak quarter.
 Banvit’s revenues came in at TL450 - up by a mere 4% YoY due to
the downward trend in poultry sales prices and the Iraq impact.
 The company recorded a 5.5% gross margin, up 0.3pp YoY, but
recorded TL24mn in operating losses due to the seasonality impact.
 Banvit recorded TL10mn net financial expense in the quarter and
TL93mn net financial expense in FY15. The company’s net debt stood
at TL468mn in 4Q15 with a 4.6x net debt/EBITDA ratio.
Banvit Summary Financials
(mn TL)
Change
4Q14
1Q15
2Q15
3Q15
4Q15
Net Sales
432
503
529
518
450
1,936
2,001
4%
-13%
3%
Gross Profit
23
55
64
68
25
253
211
9%
-64%
-17%
Operating Profit
-33
3
7
15
-24
41
0
n.m.
n.m.
-99%
EBITDA
-9
26
34
41
0
127
101
n.m.
-100%
-21%
Net Other Income/Expense
3
-4
1
-4
3
7
-4
-8%
n.m.
n.m.
-18
-31
-21
-31
-10
-72
-93
n.m.
n.m.
n.m.
8
6
3
4
13
2
25
52%
229%
911%
n.m.
n.m.
n.m.
-2.5 pp
Financial Inc./ Exp. (net)
Tax
12M14 12M15 4Q15/4Q14 4Q15/3Q15 12M15/12M14
Net Income
-39
-26
-10
-17
-47
-21
-100
Net Cash
-598
-601
-562
-499
-468
-598
-468
Working Capital
-357
-326
-271
-215
-153
-357
-153
92
66
60
62
219
92
219
Shareholders Equity
Ratios
Gross Margin
5.2%
10.8% 12.1% 13.2%
5.5%
13.1%
10.6%
0.3 pp
-7.7 pp
Operating Margin
n.m.
0.5%
1.4%
2.8%
n.m.
2.1%
0.0%
n.m.
n.m.
-2.1 pp
EBITDA Margin
n.m.
5.1%
6.4%
7.9%
0.0%
6.6%
5.0%
n.m.
-7.9 pp
-1.5 pp
Net Profit Margin
n.m.
n.m.
n.m.
n.m.
n.m.
n.m.
n.m.
n.m.
n.m.
n.m.
6
Please see the last page of this report for important disclosures.
Banvit
March 30, 2016
RESEARCH
Recommendation History and Price Performance – Banvit
4.00
3.00
2.00
BANVT
01.16
12.15
11.15
10.15
09.15
08.15
07.15
06.15
05.15
04.15
03.15
02.15
01.15
1.00
BIST-100
7
Please see the last page of this report for important disclosures.
RESEARCH
Disclaimer
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