Macro & Equity Outlook Report: Valuations reach close to fair

Valuations reach close to fair


Turkish economy seeking sustainable growth in 2021. We estimate GDP growth was 1.6% in 2020, thanks to the strong loan growth. The recovery trend continues despite tighter financial conditions. We expect a 4.2% of economic growth in 2021 under the assumption of a gradual recovery trend on domestic demand starting in 2H21, potentially better contribution from net exports and the strong base effect in 2Q21. Current trends indicate upside risks and the YoY CPI figure could reach a peak around 16% in March-April. We expect the YoY CPI could decrease to around 11.6% at the end of the year, if the required level of tight monetary policy stance is sustained. We could see a limited hike on the policy rate probably in January (or till April). On the other hand, we expect measurable cuts in the policy rate could start in June, parallel to the expected disinflation process and the policy rate could decline to 13.5% at the end of the year. Turkey’s three-year average economic growth performance is estimated to be around 1.8% during 2018-2020 period, in the aftermath of robust 2017 performance taking a toll on exchange rate dynamics later on. Hence, we believe the sustainability of the economic growth rather than the numerical level would be much more important, when we take into consideration the current difficulties on the employment, inflation, and current account outlook (Details on Page 3-5).

Our revised estimates and valuations point to BIST-100 target of 1,750 (previously 1,510); indicating 13% upside potential remaining. If this past year has taught us anything, the path to economic recovery is hardly a smooth ride with no setbacks. Flush with liquidity and low interest rates, equity market has rallied strongly on assumptions for a blue sky scenario this year. We would like to underline the risk of macro prudential measures being implemented create risks around earnings recovery, while carrying a certain level of uncertainty whether key objectives of lower inflation, C/A deficit and high GDP growth can be reached. Given this background, we recommend following a strictly bottom-up, valuation based approach while investing at BIST at the current levels. 2021E P/E is 8.5x on our estimates and 7.5x, according to consensus, while the discount to EM average has narrowed down to its historical average.

We rate all banks under our coverage as Market Perform at this point. Sector’s current valuation multiples look very attractive from a historical standpoint, but we see significant earnings pressures until 2H21, due to a combination of higher rates and elevated cost of risk. Our Top Picks is GARAN on strength of capital, profitability and ample free provision buffers (Pages 10-11).


Non-bank valuations indicate 12% overall upside potential. We estimate aggregate revenues of non-financials would grow 30% in 2021E, following a modest increase of 3% in 2020. Rebound in commodity-related sectors, weak base due to lockdowns in 2020 and higher FX rates on average would be drivers of top-line growth in 2021.  We estimate aggregate earnings to drop 31% with FX losses pressuring bottom-lines in 2020E, while seeing a strong recovery of 102% in earnings growth for 2021E thanks to the favorable base effects. Our Top-Picks among non-financial names are TUPRS, KRDMD, TKFEN, ARCLK, MPARK, AEFES, PGSUS, TAVHL, ALARK, MGROS and MAVI


Source: Y.F. Securities Research