Pricing in dilutive capital raise; downgrade to Underweight
We update our models for Halkbank and Vakifbank, to account for the recent capital injection conducted via a non-preemptive rights issue by the Turkish state (majority owner). On account of the low share price /valuation, a significant number of new shares were issued (83-100% additional shares) for just 26-28% more equity, hence dilution was significant and we reduce our price targets by 56-62%. Shares have not reacted to this development, arguably due to low liquidity and the sector off the radar at this current time, hence we now see shares that have 37-62% downside potential, driving our downgrade of both stocks to Underweight.
Halkbank – 62% price target cut to TRY2/share
We price in to our model the 28% new equity issued by Halkbank, but via increasing the share count by c.100%, which results in material dilution to minorities and drives our per share price target down by 62%. At 7x 2023e earnings and 0.3x book value, Halkbank is now in line with or more expensive than private sector peers, where we see better capital positions and returns, hence with 62% downside potential to our new fair value we downgrade shares to Underweight.
Vakifbank – 56% price target cut to TRY2.40/share
We price in to our model the 26% new equity issued by Vakifbank, but via increasing the share count by 83%, which results in material dilution to minorities and drives our per share price target down by 56%. Similar to Halkbank, at 5x 2023e earnings and 0.4x book value, Vakifbank shares now trade in line with or more expensive than private sector peers, where we see better capital positions and returns, hence with 37% downside potential to our new fair value we downgrade shares to Underweight.
Summary only
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