Turkcell Iletisim Hizmetleri A.S (NYSE: TKC)
The leading mobile phone operator of Turkey, based in Istanbul. 40.2% Gross Margin, 20.7% EBIT
With news that inflation in Turkey has hit 73% and the Turkish Lira being more volatile than bitcoin, I thought a look into what businesses might be resilient enough to survive was warranted.
TLDR: Lots of cash, manageable debt. Growth in subscribers, revenue, and profit. Currency headwinds, Ukraine war, and significant CAPEX are all reflected in stock price. Several profitable subsidiaries, including the leading payment platform of Turkey. Expect continued market price decline. Net profit was at FY21 - TRY 803 million.
Turkcell, sporting a double-digit dividend yield just might fit the bill. Turkcell Group has registered subscribers that amounted to approximately 52.3 million as of March 31, 2022. Turkcell Iletisim Hizmetleri A.S. provides digital services in Turkey, Ukraine, Belarus, Northern Cyprus, Germany, and the Netherlands. It operates through Turkcell Turkey, Turkcell International, and Techfin segments. It offers work contact services consisting of mobile communications, fixed business internet and business phone, and customer loyalty and programs.
A key member of the management team is Dr. Osman Yilmaz. Dr. Osman Yilmaz is the CFO of Turkcell. Before Turkcell, he was head of fixed income and multi-asset funds at HSBC Global Asset Management, where he spent over 8 years. He holds a BSc in Economics & Management from London School of Economics, MSc in Financial Engineering from Boğaziçi University, and a Ph.D. in Mathematical Finance from Ozyegin University.
Some recent filings show he’s made some smart moves.
Credit Rating Agency JCR Eurasia Rating (“JCR-ER”) has maintained our Company’s national long-term rating as “AAA (Trk)”, which is the highest rating level.
Our Company purchased its Eurobonds with ISIN code XS1298711729 and total nominal value of USD 1,300,000 at an average price of USD 91.596 on June 6, 2022. The transactions totaled USD 1,201,755. ISIN code XS1298711729 and a nominal value of USD 1,000,000 at a price of USD 91.000 on June 7, 2022
Gross profit has increased steadily since 2021. Here are some highlights from its latest filing.
Revenue of the Group grew by 36.7% year-on-year in Q122
Reached 40 million subscribers with 577 thousand net additions in the first quarter of the year
For Q122, operational capital expenditures (excluding license fees) at the Group level were at 17.3% of total revenues. TRY2,918
Average monthly churn rate was realized at 1.6%, the lowest level of the past four years.
Our network is largely operational, and we continue to provide services to our customers in Ukraine. There has been no material damage or outage in the core network.
Total fixed broadband subscribers exceeded 2.7 million, Residential fiber ARPU rose by 21.0%
The total revenues of Digital Business Services, the leader in the IT Services market, rose 75.2% year-on-year to TRY791 million.
Financell and Paycell had a strong quarter, contributing to the growth of our techfin business revenues, which increased by 58.5% in the first quarter of 2022. Financell’s revenues grew 50.0% year-on-year in Q122 though Financell’s net income declined 30.8% year-on-year due mainly to the fair valuation impact of its derivative instrument portfolio. A 42% increase in the 3-month active users of the Pay Later service to 4.1 million and their increased usage.
Consolidated cash as of March 31, 2022, increased to TRY18,804 million, 76% of cash is in US$, 12% in EUR, and 10% in TRY. Currency exchange resulted in over $1B loss in FX in Q122, down from a $1.6B loss in Q4. 49% of consolidated debt is in US$, 26% in EUR, 3% in CNY, 7% in UAH, and 14% in TRY.
2022 guidance; revenue growth target of around 30%, EBITDA target of around TRY19 billion
Curiously, nothing has been mentioned about the dividend, which has been quite high in previous years. Last year's payment was sent in June.
Checklist
Net debt to EBITDA is 1.2. (though it has nearly doubled in the last 3 quarters)
Stable & Healthy Gross Margin (29.8%)
EV/EBIT low of 6 in 2018, approximately 12 currently.