Please see the important disclosures at the end of this report Forecasts and Financial Ratios (TRLmn) 2008 2009 2010 2011E 2012E Net Sales 111 131 135 164 196 Sales growth 5.7% 18.2% 2.6% 22.1% 19.1% EBITDA 4.3 11.1 10.3 11.2 13.1 % margin 3.9% 8.4% 7.7% 6.8% 6.7% Net Earnings 4.4 7.6 8.1 9.8 12.6 % margin 4.0% 5.8% 6.0% 6.0% 6.5% EPS 0.39 0.66 0.70 0.86 1.10 P/E 20.7 12.1 11.4 9.3 7.3 EV / EBITDA 20.9 8.1 8.7 8.0 6.8 DPS 0.33 0.31 0.27 0.36 0.47 Dividend Yield 4.1% 3.9% 3.4% 4.5% 5.8% A specialist focused on IT consumables distribution: Despec is the market leader IT consumables distributor in Turkey with an overall 23% market share in the sector. The company is mainly active in distribution of printer supplies, data storage equipment, paper, office stationeries and PC accessories. While printer consumables constitute 89% of top-line, HP is the company‟s major supplier with 63% share in total sales in 2010. Further, the company is also the market leader in the original printer consumables market with c. 40% market share. Benefits from the synergy among Index Group companies: We believe that Depsec‟s vast distribution network is its major competitive edge which is also supported by the synergy among Index Group companies. Despec benefits from the Index Group‟s operational know-how, distribution network and cross-selling opportunities. Despec Group B.V. is the other major shareholder, which is a Holland based company operating in the same business line in Europe and Middle Eastern countries, along with Turkey. Being the largest IT consumables distributor across Europe, partnership of Despec Group B.V. is offering procurement and pricing advantages. Strong revenue record… Healthy projections going forward: Despec has attained 11% revenue CAGR in the last five years in USD terms (14% in TRL terms), outpacing the 9% CAGR in national income. For the following 3 years period, we projected a CAGR of 10%, assuming that current growth rates could easily be sustained especially with the contribution from rapid growth accessories category sales. We projected slight erosion in operating margins starting from 2011 onwards amid possible competitive environment with the entry of int‟l players into the market. Following 11.7% and 11.3% gross margins in 2009&10, we expect 10.5% in 2011. Furthermore, we believe that EBITDA margin of 4% recorded in times of economic slowdown in 2008 will not be experienced again, thanks to the company‟s bargaining power based on strong long-term relationships with vendors. We expect the EBITDA margin to average at 7% levels through our valuation period. Focus on IT accessories market could deliver a booster shot to operating margins: IT accessories market in which the company has only a 3% market share is the main growth opportunity segment. The management has recent efforts to initiate new contracts with global brands. Besides, they have plans to create their own brand in the medium term which will further support the margins. Note that margins in the accessories segment (14.3% gross margin in 2010) is significantly higher compared to printing consumables (11.3%), thus, growth in this segment would be the main upside risk for our valuation going forward. No debt: Along with minimal maintenance capex requirement and stable net working capital, the company has a net cash of USD2mn as of 2010-end. Risks: Possible slowdown in economy, weakening demand for IT consumables, increasing credit receivables risk, entry of int‟l players into the market, major exchange rate fluctuations and dependence on HP products are the major risk factors for the business. Initiating with an OUTPERFORM rating Having a dominant position in a focused business, Despec is the major beneficiary from the high growth potential of the fast growing Turkish IT sector. With intentions to grow in accessories market, we believe that volume growth will translate into improved bottom-line. Our target price of TRL9.8 implies 23% upside potential. Dominant position in a focused business… Despec Bilgisayar IT Consumables Distributor TURKEY- EQUITY RESEARCH Initiation Alper Özdemir +90 212 319 1411 [email protected]DESPC TI / DESPC.IS May 5, 2011 OUTPERFORM Initiated Valuation Share Price (TRL) 8.0 Target Price (TRL) 9.8 Upside Potential 23% Market Cap (USDmn) 60.3 Net Debt (USDmn) -1.6 EV (USDmn) 58.6 Net FX Pos. (USDmn) -9.8 Trading 12m High / Low 11.50 / 5.76 Avg. Daily Vol. (USDmn) 2.1 Num. of shares (mn) 11.5 Foreign Ownership 0.04% Ownership Structure Desbil Teknoloji* 30.25% Despec Group B.V. 30.33% Free Float 39.35% Other 0.07% *owned by Erol Bilecik, who is the major shareholder of INDES.IS Performance Chart Return TRL Rel. 1M 20% 17% 3M 11% 2% Since IPO 10% 8% 50% 70% 90% 110% 130% 150% 170% 20 30 40 50 60 70 80 90 Apr-11 Apr-11 Apr-11 Mar-11 Mar-11 Feb-11 Feb-11 Jan-11 Jan-11 Dec-10 M. Cap. Rel.Perf.
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Initiation Despec Bilgisayar TURKEY- EQUITY RESEARCH...According to ITU figures, household PC ownership penetration stands at 27% in Turkey, while this figure is high as 70% in the
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Please see the important disclosures at the end of this report
Forecasts and Financial Ratios
(TRLmn) 2008 2009 2010 2011E 2012E
Net Sales 111 131 135 164 196
Sales growth 5.7% 18.2% 2.6% 22.1% 19.1%
EBITDA 4.3 11.1 10.3 11.2 13.1
% margin 3.9% 8.4% 7.7% 6.8% 6.7%
Net Earnings 4.4 7.6 8.1 9.8 12.6
% margin 4.0% 5.8% 6.0% 6.0% 6.5%
EPS 0.39 0.66 0.70 0.86 1.10
P/E 20.7 12.1 11.4 9.3 7.3
EV / EBITDA 20.9 8.1 8.7 8.0 6.8
DPS 0.33 0.31 0.27 0.36 0.47
Dividend Yield 4.1% 3.9% 3.4% 4.5% 5.8%
A specialist focused on IT consumables distribution: Despec is the market leader IT consumables distributor in Turkey with an overall 23% market share in the sector. The company is mainly active in distribution of printer supplies, data storage equipment, paper, office stationeries and PC accessories. While printer consumables constitute 89% of top-line, HP is the company‟s major supplier with 63% share in total sales in 2010. Further, the company is also the market leader in the original printer consumables market with c. 40% market share.
Benefits from the synergy among Index Group companies: We believe that Depsec‟s vast distribution network is its major competitive edge which is also supported by the synergy among Index Group companies. Despec benefits from the Index Group‟s operational know-how, distribution network and cross-selling opportunities. Despec Group B.V. is the other major shareholder, which is a Holland based company operating in the same business line in Europe and Middle Eastern countries, along with Turkey. Being the largest IT consumables distributor across Europe, partnership of Despec Group B.V. is offering procurement and pricing advantages.
Strong revenue record… Healthy projections going forward: Despec has attained 11% revenue CAGR in the last five years in USD terms (14% in TRL terms), outpacing the 9% CAGR in national income. For the following 3 years period, we projected a CAGR of 10%, assuming that current growth rates could easily be sustained especially with the contribution from rapid growth accessories category sales. We projected slight erosion in operating margins starting from 2011 onwards amid possible competitive environment with the entry of int‟l players into the market. Following 11.7% and 11.3% gross margins in 2009&10, we expect 10.5% in 2011. Furthermore, we believe that EBITDA margin of 4% recorded in times of economic slowdown in 2008 will not be experienced again, thanks to the company‟s bargaining power based on strong long-term relationships with vendors. We expect the EBITDA margin to average at 7% levels through our valuation period.
Focus on IT accessories market could deliver a booster shot to operating margins: IT accessories market in which the company has only a 3% market share is the main growth opportunity segment. The management has recent efforts to initiate new contracts with global brands. Besides, they have plans to create their own brand in the medium term which will further support the margins. Note that margins in the accessories segment (14.3% gross margin in 2010) is significantly higher compared to printing consumables (11.3%), thus, growth in this segment would be the main upside risk for our valuation going forward.
No debt: Along with minimal maintenance capex requirement and stable net working capital, the company has a net cash of USD2mn as of 2010-end.
Risks: Possible slowdown in economy, weakening demand for IT consumables, increasing credit receivables risk, entry of int‟l players into the market, major exchange rate fluctuations and dependence on HP products are the major risk factors for the business.
Initiating with an OUTPERFORM rating
Having a dominant position in a focused business, Despec is the major beneficiary from the high growth potential of the fast growing Turkish IT sector. With intentions to grow in accessories market, we believe that volume growth will translate into improved bottom-line. Our target price of TRL9.8 implies 23% upside potential.
Other non-current liabilities 0.0 0.0 0.0 0.0 0.0 0.0
Total non-current liabilities 0.1 0.1 0.1 0.3 0.2 0.2
Total liabilities 11.9 11.5 21.5 16.0 23.3 30.1
Total shareholders' equity 18.2 22.7 26.8 35.1 44.2 54.6
Capital 11 11 11 11.5 11.5 11.5
Minority interest 0 0 0 0 0 0
Total liabilities and shareholders' equity 30.1 34.2 48.3 51.2 67.5 84.7
Financial Ratios
ROE 12.8% 19.6% 28.4% 23.0% 23.5% 23.5%
Asset Growth 13.6% 41.2% 5.9% 31.9% 25.5%
Equity Growth 24.5% 18.1% 31.1% 25.8% 23.5%
Current Ratio 2.5 2.9 2.2 3.1 2.9 2.8
Quick Ratio 1.8 2.5 1.5 2.1 2.1 2.1
Debt / Equity 0.7 0.5 0.8 0.5 0.5 0.6
Equity/Total Assets 0.6 0.7 0.6 0.7 0.7 0.6
Debt/Total Assets 0.4 0.3 0.4 0.3 0.3 0.4
Net Cash Cycle 46 46 67 72 55 55
Receivables Days 41 53 53 55 50 50
Payables Days 29 22 35 33 35 35
Inventory Days 33 16 49 50 40 40
Source: Company Data, Oyak Securities
Please see the important disclosures at the end of this report
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Initiation
Despec Bilgisayar
This document has been prepared by its authors independently of Despec Bilgisayar („„Despec‟‟). Oyak Yatirim Menkul Değerler A.Ş. ("Oyak Yatirim") has no authority whatsoever to give any information or make any representation or warranty on behalf of the Company or any Selling Shareholder or any other person in connection therewith. In particular, the opinions, estimates and projections expressed in it are those of the authors hereof and are not given as an agent of the Company, any Selling Shareholder, or Oyak Yatirim in its capacity as a manager or underwriter of any offering. Oyak Yatirim and/or one or more of its affiliates is or may be acting as an underwriter in an offering of securities of the Company. This document does not constitute or form part of any offer, solicitation or invitation to subscribe or purchase any securities nor shall it or any part of it form the basis of or be relied upon in connection with any contract or commitment whatsoever. While the information in this document and the opinions contained herein are based on sources believed to be reliable, Oyak Yatirim has not independently verified the contents hereof. The opinions, estimates, and projections expressed are as of the date hereof and are subject to change without notice. No representation or warranty, express or implied is made as to and no reliance should be placed on the fairness, accuracy, completeness or reasonableness of the information, opinions and projections contained in this document, and none of Oyak Yatirim, the Company, any Shareholder, nor any other person accepts any liability whatsoever for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection therewith. THIS DOCUMENT IS BEING SUPPLIED TO YOU SOLELY FOR YOUR INFORMATION AND MAY NOT BE REPRODUCED, REDISTRIBUTED OR PASSED ON, DIRECTLY OR INDIRECTLY, TO ANY OTHER PERSON OR PUBLISHED, IN WHOLE OR IN PART, FOR ANY PURPOSE. In the United Kingdom, this document is for distribution only to (I) persons who have professional experience in matters relating to investments falling within article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion), Order 2005 (the "Order") or (II) high net worth entities falling within article 49(2)(a) to (d) of the Order or (III) persons who are intermediate customers under Chapter 4 of the FSA Conduct of Business Rules (all such persons to being referred to as "Relevant Persons"). In the United Kingdom, this document is directed only at Relevant Persons and other persons should not act or rely on this document or any of its contents. THE DISTRIBUTION OF THIS DOCUMENT IN OTHER JURISDICTIONS MAY BE RESTRICTED BY LAW, AND PERSONS INTO WHOSE POSSESSION THIS DOCUMENT COMES SHOULD INFORM THEMSELVES ABOUT AND OBSERVE, ANY SUCH RESTRICTIONS. BY ACCEPTING THIS REPORT YOU AGREE TO BE BOUND BY THE FOREGOING INSTRUCTIONS.
Disclaimer
Disclaimer
This document has been produced by OYAK Yatirim Menkul Degerler A.S. ("OYAK Securities") solely for information purposes and constitutes no offer or solicitation of an offer to buy or sell any securities. OYAK Securities obtains information from sources considered to be reliable, but does not guarantee its accuracy or completeness. Under any circumstance, OYAK Securities or others associated with it cannot be held liable for any damages resulting from inaccuracies/deficiencies and commercial use of this information. All opinions and estimates constitute those of OYAK Securities‟ Research Department as of the date of the report and hence do not represent the opinions or estimates of any other OYAK Group companies. The information and opinions are subject to change without notice. OYAK Securities and others associated with it may hold positions and effect transactions in securities of entities mentioned in the document. In addition, investors should assume that OYAK Securities and others associated with it might have, might be seeking or will seek investment banking or other business relationships with the companies in this report.