Yayla Gıda(TFG Istanbul Menkul Değerler )

n Trading may not be a Sustainable Profit Source

Yayla Gida generates the bulk of its top-line from wheat and grain trading. 61% of the sales were generated from the trading segment in 2022, up from 17% in 2019. We believe that a large portion of the profit from the trading business is generated through commodity price speculation as well as inventory gains, the majority of which simply stems from inflation. The sustainability of successful trades on grain prices is debatable and inflation gains will totally disappear once the inflation accounting kicks-in.
n TMO Sales are Accounted as International Sales, but These are not Exports
The company uses the term “international sales” in its reports, naturally prompting investors to perceive the definition as “exports”, which is not the case. The IPO prospect gives the reasoning that because the products are delivered in the free zone, these sales are accounted as international/overseas sales (Prospect, Page 61). Big chunk of the international sales are made to TMO (Turkish Grain Board). In order to arrive at the core export rate, we excluded TMO sales from the international sales. In 2021, the core export rate is 17% versus the company’s reported international sales ratio of 65%. Since most of the raw materials are imported (Prospect, Page 73) the company might even be a net importer. Core exports calculation is not possible any more, as the company no longer discloses its total sales to the TMO.

n Margin Accretion on Value Added Products is Unlikely to Prevail

The average gross margin for value added products segment between 2019-2021 was 43%, which should be indicative of the current level while being no longer disclosed by the company. IPO price calculation report on the other hand was guiding for 52.5% for FY2023 and beyond, which could be demanding. Value added products segment of peers has operating margins ranging from 10% to 21% (Detailed comparison of peers are given at page 6). We believe that YYLGD already has very high margins with risks on the downside.

n Nigde Investment is Priced in While Trading Risk is not, in our View

All in all, we believe that the trading segment of the company is risky and can go both ways, value added product segment margins are too high and correction in the margins seem inevitable in the long term. We recommend investors to be cautious on the stock given the above-mentioned risks as well as the fair valuation. Even though TTM EV/EBITDA multiple of 11.9 indicates 7% premium to the peers but we do not think that peer comparison is indicative due to company’s new investment which will take full effect in 2025 that will significantly increase EBITDA. In 2024 and 2025 we expect CAGR 19% EBITDA growth which is mostly coming from the Nigde investment. Our DCF based valuation that takes into consideration this investment, provides TRY 25.7/share 1 year forward looking target price for the company implying 10% upside.


 TFG Istanbul Menkul Değerler A.Ş.
  www.tfgistanbul.com/arastirma-raporlar
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