For starters, TKC seems phenomenally profitable. According to the stats on Yahoo Finance (our source for all the numbers in this post), the company has an operating margin of 28.57% and a net margin of 22.56%. Return on assets is 17.25% and return on equity 34.10%. Wow.
Even after Wednesday's jump, Turkcell’s multiples are just not high. The company has a trailing P/E of 9.64 and a forward P/E of 7.60. Enterprise Value to EBITDA is only 4.77 and price/sales is 2.03. If you know of another opportunity to buy such high profitability at such low multiples, please email us!
Yahoo Finance shows no net debt on the balance sheet: cash of $1.12 billion and debt of $830.6 million. There’s also a forward dividend yield of 4.2%.
No small player in the Turkish wireless market, TKC dominates with an approximate two-thirds market share. It also owns the third largest Ukrainian wireless operator and is seeking to expand elsewhere.
It seems too good to be true: fat margins, low multiples, excess cash, a high dividend, international expansion, and a dominating company in an industry where economy of scale is a true competitive advantage. (Yahoo also reports insider ownership of 30610.20%, although there is something suspicious about that number.)
We’re not certain at this point what the risks are—but we are pretty sure that they’re there. Turkish politics, inflation, and emerging market volatility may all be sources of potential trouble. We find the numbers compelling enough to look closer, but know that we haven’t yet mastered the investment proposition.
In January, we covered a closed end fund that invests in Turkey.
TKC 1-yr chart: