NAV update. We have revisited our NAV model and applied higher valuations to the banking and energy lines (see p5-6 tables). We now calculate the current NAV discount to be 49% and target NAV discount to be 53%. Incremental value in our SOTP since our previous update on SAHOL comes mainly from a c23% higher fair value for Akbank of TRY56.50 (from TRY46.00), based on HSBC’s target price, and a c64% higher fair value for the unlisted energy generation subsidiary, EnerjiSA Generation of USD5.4bn (from USD3.3bn) given the additional renewable capacity additions expected in the next two years (in excess of 1GW).
Energy growing fast and profitably. We now calculate the target NAV contribution from the company’s energy operations in Türkiye (generation and distribution) and in the US (solar energy projects) adding up to c37%, the highest ever, followed by banking (c35%). Energy continues to grow on all fronts, with plans on the generation side calling for a total installed capacity of 5GW by the end of 2025 (60% in renewables) and a near quadrupling of the capacity in the US (0.5GW currently)
benefiting from tax equity financing (enabling lower cost of funding in a high demand environment in Texas). In combined terms, we estimate total energy division EBITDA of cUSD1.5bn in 2026e vs cUSD1.2bn in 2022 and 2023e. We see the contribution to total group combined EBITDA rising from 15-20% (2022-23) to 25-30% (2025-26e).
Determined pursuit of strategic plan, viable capital allocation. Steps continue to be taken to grow in essentially energy, advanced materials, and digital technologies, which overall serve the aim of growing the core operations, entering new growth platforms, and diversifying geographically to improve international revenues. Effects are small yet (such as new digital operations and investments into renewable energy in the US), but are growing and could prove value-accretive over time. Investments for growth (to double as a percentage of non-bank revenue in the medium term plan for 2022-26), sustainable dividends (5-20% of net income), and share buy-back (up to 5% of capital) comprise the three pillars of the capital allocation roadmap.
Raise target price to TRY114.40 (from TRY95.00); retain Buy. We increase our target price based on increases in the valuations for both the listed and non-listed subsidiaries, predominantly banking and energy. We value Sabanci’s non-bank portfolio at c9x 2024e earnings (from 6x 2023e). Our TP implies a current NAV discount of 25% and upside of c48%; we retain our Buy rating.
HSBC Global Research