Outlook:
The BIST100 Index started Friday on a negative trend, regressed to 5,054 and then recovered some of its losses with purchases. The Index closed the day down 0.93%, at 5.212.38. The Banking Index was negative, down 1.44%, while the Industrial index gained 0.18%. On a weekly basis the BIST100 Index rose by 2.93%, while the Banking Index rose by 7.40%, turning positive, and the Industrial Index lost 0.38%. We expect news flow that the Wealth Fund will support companies listed on the stock exchange with resources to be provided from its companies after company buybacks and the increase in the share ratio of PPS contribution funds to remain instrumental in the short term. As the balance sheet period approaches its end, rising earthquake-related uncertainty also leads to continued stock and sector-based divergences. Risk appetite in major global stock markets increased with the message from Fed member Bostic last week that interest rates may be kept constant over the summer months. The U.S. and European Stock Markets recorded a rise on Friday. The U.S. Stock Markets recorded sideways positive increases on a weekly basis, while the European Stock Markets recorded an average increase of 1-2%. Risk appetite in global stock markets will be shaped by approaching data releases and possible statements from Central Bank members. This week will see Fed Chairman Powell's statements on Tuesday and Wednesday, and the U.S. non-farm payrolls data on Friday. This morning, the U.S. and German DAX futures were almost flat, while Asian Stock Markets are positive. Locally, the VIOP-30 Index closed the Friday evening session positively with a limited rise of 0.16%. We expect the Benchmark Index to start Monday flat, and the reactionary uptrend will continue despite any intraday pullbacks. SUPPORT: 5,175 - 5,114 RESISTANCE: 5,256- 5,335.
Money Market:
The Lira was negative on Friday, weakening 0.03% compared to the USD to close to 18.8943. In addition, the currency appreciated by 0.02% against the basket composed of $0.50 and €0.50. Meanwhile, the local fixed income markets were negative. The ten-year benchmark bond was traded within a range of 10.93%-11.58%, ending at the 11.56%, 83 bps above its previous closing.
Headlines:
While CPI rises 3.15% monthly in February, annual inflation is at 55.18%. Price rigidity continues in CPI, and the PPI-CPI gap continues to narrow with the breaking of PPI momentum: While CPI increased by 3.15% in February compared to the previous month, annual inflation was at 55.18%. The market expectation was that inflation would increase by 3.48% monthly and 55.68% annually (Seker Invest expectation was 3.7% monthly and 56% annually). Inflation inertia remains very high in the market and the data, which is close to our expectations. In particular, food inflation increased by 7.36% monthly. The average of food, housing and transportation inflation, which has a weight of 57% in the index, increased by 59% annually. In the same period, monthly inflation in the B index (core inflation), which is the Special Comprehensive CPI Indicator, was 2.62%, while annual inflation was 55.16%. While core indicators converge to the general inflation level, the base effect is still robust despite the stickiness in monthly price accelerations, bringing with it the perception of a slowdown in annual inflation.
Producer prices increased by 1.56% monthly in January, while the annual change in PPI stood at 76.61%. If this month's course in PPI continues, signals that the disinflationary process will begin may emerge. The PPI-CPI spread, which rose to about 70 points in October 2022, declined to the level of 20. Permanent decreases in PPI will be reflected in CPI in the medium term, and will loosen price rigidities downwards. When we consider the sub-indices of PPI, the annual changes of the main industry groups are; an increase of 57.05% in intermediate goods, 60.34% in durable consumer goods, 92.95% in non-durable consumer goods, 129.50% in energy and 58.04% in capital goods. We expect PPI-induced cost pressures on CPI to decrease. And yet the demand-driven inflation effect will continue for some time in the low interest rate environment. We anticipate that the recent negative domestic disaster-induced supply shock will cause deterioration in the supply-demand balance in terms of price dynamics in the first half of the year. Our expectation of a decline in inflation will be realized with a few months’ lag. For our detailed analysis, please click the link;
Sector News:
According to Bloomberg, the CBRT has stated that conversion accounts opened using TRY deposit accounts will not be taken into account in the calculation of individual and commercial Turkish Lira shares. It has been stated that conversions from TRY loan or currency protected deposit accounts with Treasury counterparty to CBRT counterparty will not be counted as TRY shares.
Company News:
HalkBank (HALKB.TI; MP) has bought back 300K of its own shares (0.01% of its paid-in capital) within a TRY10.65-11,69 share price range as part of its share buyback program of up to TRY250mn nominal shares and TRY2.25bn value. (Total amount bought: 117.9mn shares), which is 2.4% of its paid-in capital (Neutral).
VakifBank (VAKBN.TI; MP) has bought back 250K of its own shares (0.004% of its paid-in capital) within a TRY9.65-9.69 share price range as part of its share buyback program of up to TRY150mn nominal shares and TRY1bn value. Total amount bought: 60.8mn shares, which is 0.86% of its paid-in capital (Neutral).
Isbank's (ISCTR.TI; OP) Annual General Meeting will be held on March, 30, 2023. The Board is to propose the distribution of TRY9,231mn gross cash dividends from its 2022 earnings at its Annual General Meeting (AGM). This amounts to a 15.03% pay-out from earnings at a gross TRY0.9230437 and net TRY0.8307393 per group C share, corresponding to a dividend yield of 7.8% (AKBNK: 9.9%) according to current prices. The proposed ex-dividend date is 3rd April.
EBITDA per ton recovers from around a 3-year low: Kardemir (KRDMD.TI; OP) reported a net loss of TRY 219mn (4Q21: TRY 1,716mn net profit) in 4Q22. The net loss was 5% above the our TRY 207mn expectation and 13% above the TRY 251mn median market expectation. In addition to increased costs and operational expenses, TRY 921mn financial expenses affected the net loss position.
In 4Q22, Kardemir booked TRY 7,765mn in revenues, above the our TRY 7,588mn estimate and the market’s median TRY 7,311mn estimate. Quarterly sales volume was the highest in 2022 with 548 thousand tons, down 2% compared to 4Q21. With the rise in sales volume, the weak Turkish Lira was the catalyst in the rise in revenues despite the decline in iron prices.
The company printed a TRY 599mn EBITDA; above our TRY 562mn estimate and the median market estimate of TRY 587mn. Increased operational expenses and raw material costs suppressed on EBITDA. The EBITDA margin declined 28 points yearly (9%). EBITDA per ton was USD68 rising from USD52, the lowest level in around 3 years in 3Q22.
From net cash to net debt... The company's net debt was TRY 595mn at 4Q22. The net Debt/EBITDA ratio is quite low at 0.14x, indicating that the company has no problem in paying its short-term debts. The company's FX short position is at TRY 10,217mn, increasing the sensitivity to currency movements. On the other hand, sales are realized in dollars, acting as a natural hedge.
There are plans to construct 200 thousand new houses in the 11 provinces impacted by the earthquakes of February 6 centered in Kahramanmaras. Kardemir isn't first in line among the rebar suppliers due to its distance from the region. However, considering the production capacities of the regional companies, Kardemir is expected to be included in the project with its current capacity. Kardemir's product range includes ribbed bar and round steel, which are widely used in construction. When we consider Kardemir's production capacity for the products in question, we calculate an extra potential of approximately 500 thousand tons in addition to our previous 2023 estimates, if working at full capacity. However, due to logistics costs, sales may have to be realized at a lower profit margin.
We expect pressure on margins to ease if the reductions in industrial electricity prices and the decline in coal prices continue.
The Board of Directors is set to propose to the General Assembly to pay a dividend of TRY 0.2192982 (gross) per share to be paid in two installments, for the Group D shares.
Pegasus (PGSUS.TI; OP) is to announce its 4Q22 results after the close of the TR markets. For 4Q22, we expect net sales of TRY 11,904mn (Research Turkey market average expectation: TRY 11,601mn), rising 241% YoY. On the EBITDA side, the average market expectation is TRY 3,708mn, while our expectation is TRY 3,739mn. As a result, we expect the Company to print a net profit of TRY 3,570mn (RT market expectation: TRY 2,978mn).
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