Wednesday, March 22, 2006

Turkcell Iletisim Hizmetleri A.S. (ADR) TKC analysis.

A quick analysis 0f Turkcell Iletisim Hizmetleri A.S. (ADR) TKC. Turkcell is the major provider of mobile communication services in Turkey, a fast growing nation of 70 million plus inhabitants. Turkcell is expected to grow its earnings by over 20% a year for the next 10 years and here it is priced just over $18 and a P/E ratio of under 15. Here ladies and gentleman, is a company that grew revenues between 2004 and 2005 by 33% and recorded a 78% increase in net income year over year. Some of the highlights were :

  • Turkcell recorded strong subscriber growth year on year. Turkcell added 4.5 million (4.4 million) net new subscribers during 2005 and recorded a 19% increase in its overall subscriber base to 27.9 million (23.4 million) as of December 31, 2005
  • Usage increased by 4% to 67.7 minutes (64.9 minutes) as a result of improvements in the macroeconomic environment, positive consumer sentiment and the effects of volume-based campaigns
  • Revenue increased 33% to US$4.3 billion (US$3.2 billion) during the year ended December 31, 2005
  • EBITDA increased to US$1,933.3 million (US$1,338.8 million) during the year ended December 31, 2005 and Turkcell recorded an EBITDA margin of 45% mainly due to improved operational performance
  • Net income increased 78% to US$910.9 million (US$511.8 million) during the year ended December 31, 2005

Outside of Turley, Turkcell also has interests in international GSM operations in Azerbaijan, Georgia, Kazakhstan, Moldova, Northern Cyprus and Ukraine. Turkcell has a potential market of over 300 million people and has so far acquired less than 30 million subcribers. Thats less than a 10 percent penetration with huge potential for future growth. Using a Discounted Cash Flow model based on a very conservative estimate of 15% growth over 10 years, Turkcell has a fair book value of around $28 which is a full $10 above the current price. For anybody interested in value investing, Turkcell is easily one of the most undervalued stocks in the market based on its current and future growth expectancy. I am sure even the great Warren Buffet would agree with the last statement.

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