Boyner Magazacilik. Bloomberg: BOYNR TI OUTPERFORM. Reuters: BOYNR IS. Full synergies to be seen in Equity / Mid Cap.

Transcription

1 Equity / Mid Cap. / Retail Trade Boyner Magazacilik Bloomberg: BOYNR TI Reuters: BOYNR IS Full synergies to be seen in 2013 OUTPERFORM recommendation is maintained with a revised target price. We are revising our target price for BOYNR reflecting updated company guidance for the potential synergies to be realized through YKM acquisition. The company targets to reach consolidated net sales of TL1.5bn with more than TL30mn cost savings to be realized at EBITDA level, corresponding to an EBITDA margin of 9.2% in 2013 compared with estimated TL937mn revenues and 6.6% EBITDA margin in We have fine-tuned our margin improvement estimates driven by YKM acquisition during our projection period with a conservative approach (assuming 7.5% EBITDA margin in 2013 and average 8.5% EBITDA margin during our projection period) and reached to a target equity value of TL for BOYNR, corresponding to a 12 month target share price of TL 7.31/share which offers 40% upside potential. Boyner s 2013E and 2014E EV/EBITDA multiples (adjusted for minority stake at YKM) of 7.6x and 6.5x remain well below the global peers median of 8.3x and 9.1x for the same periods, respectively. Strengthened its market position by acquiring its biggest competitor. In addition of acquiring its biggest competitor, Boyner extended its geographical reach as well as its customer base through the YKM acquisition, expanding its exposure to 10 new cities. Accordingly, Boyner s net sales area grew 88%, reaching to a sizeable net sales area of 250K sqm with its total 87 Department Stores, 17 Single Category Stores, 12 Carsı stores and 24 Outlet Stores. More importantly, no cannibalization impact is expected to be experienced since YKM has different store format and customer portfolio, focusing more on low-middle income segment and has stronger presence in Anatolian cities. Synergies through the acquisition will add up significant value. Since almost 70% of YKM and Boyner s products are sourced from the same suppliers, the acquisition will bring significant economies of scale in procurement. On the operational side, rent expenses are expected to decline as the combined entity will have more bargaining power vis a vis shopping mall operators. Lastly, since both entities will share a single headquarter and administrative staff, there will be notable savings at general expenses will be a transition period. In 2012, the company is expected to incur TL12.4mn (already recorded TL7.8mn in 9M12) acquisition related one-off costs, including legal consultancy and managerial advisory and TL9.5mn financial expenses (the layoff costs due to downsizing of headquarter personnel) has incurred due to YKM acquisition. Hence, we calculate TL9mn net income in 2012 vs TL24mn posted in Therefore, all oneoff charges will be reflected in 2012 financials, while the impact of synergies will be fully visible in Company Update OUTPERFORM Upside Potential* 40% Stock Data TRY US$ Price at Month Target Price Mcap (mn) Float Mcap (mn) No. of Shares Outstanding 92 mn Free Float (%) Avg.Daily Volume (3M, mn) Market Data TRY ISE ,275 US$ Spot Rate US$ 12-Month Forw ard Price Performance (%) 1 Mn 3 Mn 12 Mn TRY US$ Relative to ISE Price / Relative Price TRY BOYNR Relative Relative to ISE /02/ Week Range (Close TRY) Ilyas Safa Urganci iurganci@isyatirim.com.tr Please refer to important disclaimer at the end of this report. 1

2 Summary of Key Financials (TL mn) Income Statement (TL mn) 2010A* 2011A* 2012E* 2013E 2014E Revenues ,482 1,675 EBITDA Depreciation & Amortisation EBIT Other income (expense), net Financial expenses, net (14) (9) (21) (37) (36) Minority Interests (8) (9) Income before tax Taxation on Income (3) (6) (6) (10) (14) Net income Cash Flow Statement (TL mn) Net Income Depreciation & Amortisation Indemnity Provisions Change in Working Capital (45) 6 (72) (22) (30) Cash Flow from Operations (11) 48 (33) Capital Expenditure Free Cash Flow (29) 24 (269) 3 2 Rights Issue Dividends Paid Other Cash Inflow (Outflow ) (1) 10 Change in net cash (21) 27 (249) 2 9 Net Cash (66) (39) (288) (286) (277) Balance Sheet (TL mn) Tangible Fixed Assets Other Long Term Assets Intangibles Goodw ill Long-term financial assets Inventories Trade receivables Cash & equivalents (6) Other current assets Total assets ,004 Long-term debt Other long-term liabilities Short-term debt Trade payables Total Debt Other short-term liabilities Total liabilities Minority Interest Total equity Paid-in capital Total liabilities & equity ,004 Ratios ROE (%) ROIC (%) Invested Capital Net debt/ebitda (x) Net debt/equity (%) Capex/Sales (%) Capex/Depreciation (x) EBITDA Margin EBIT Margin Net Margin Valuation Metrics EV/Sales (x) 0.8x 0.4x 0.7x 0.5x 0.4x EV/EBITDA (x) 11.3x 5.6x 10.6x 6.4x 5.5x EV/IC (x) 3.0x 1.7x 1.5x 1.5x 1.4x P/E (x) 12.7x 13.1x 36.5x 13.4x 9.8x FCF yield (%) -13% 8% -84% 1% 0% Dividend yield (%) 0% 0% 0% 0% 1% *based on average Mcap during the year Company Overview Boyner Buyuk Magazacilik AS (Boyner) is engaged in the operation of department stores, retailing apparel and clothing, as w ell as general merchandise. The company also offers its ow n product lines, such as Cotton Bar, Asymmetry, Pi, Limon, Altimod and Mammaramma. Boyner stores also offer Beymen Club, Beymen Business, B Beymen and Beymen studio brands. The Company operates through 140 stores including YKM in a total of 37 provinces all over Turkey as of Shareholder Structure Free Float 30.0% Fennella S.A.R.I. 30.1% 0.1% Foreign Ownership (%) 39.9% Altinyildiz Mensucat ve Konfeksiyon Fabrikalari A.S. Other 31/12/ /02/2013 YTD change % 2

3 Rationale behind YKM acquisition Eliminated its biggest competitor. Boyner acquired 63% stake at YKM for TL177mn in September 2012 implying TL280mn entire valuation for the company, implying price tag of 0.7x EV/Sales and 9.7x EV/EBITDA multiples, respectively. The acquisition multiple for YKM stood at a premium over global peers median EV/EBITDA multiple of 7.8x at that time. Following the acquisition, Boyner s net sales grew by c.88% reaching to a sizeable of 250K sqm. In addition of eliminating its biggest competitor, the Company s market share will climb to 40% from 23% in the department store segment, strengthening its competitive position. The acquisition is anticipated to create the following synergies which may justify the premium paid for the acquisition: FIGURE 1: Geographical Reach with YKM acquisition Source: Company i) Expanding Boyner s geographical reach: Boyner will expand its operating region by entering 10 new cities as the two companies target different customer segments. (YKM focuses more on low-middle income segment and has stronger presence in Anatolian cities.) ii) Procurement: As 70% of YKM and Boyner s products are sourced from same suppliers, the acquisition will bring significant economies in procurement. iii) Rent Expenses: We expect lower rent expenses as the combined entity will have greater bargaining power vis a vis shopping mall operators. vi) Administrative Expenses: Lastly, as both entities will share a single headquarter and administrative staff, there will be sizeable savings at general expenses In addition, if the company were to choose to increase its net sales area by 116,000sqm through organic growth instead of acquiring YKM, it would take around 8 years (20-25K sq /p.a.) period and would cost c.usd116mn. In fact, capital expenditure required to open a new store having c.20k-25k net sales area including inventory is around 1000USD. Besides, it takes c. 2-3 years for a newly opened store to reach maturity. Apart from that, finding a strategic location to open a new store would be another significant hurdle for the company. Even excluding potential synergies and elimination of the biggest competitor, YKM acquisition sounds rational. 3

4 Revenues will be fueled up through both organic and inorganic expansion. Including the consolidation of YKM starting 4Q12, we estimate consolidated revenues to reach TL937mn in In 2013, consolidated revenues are expected to be TL1,482mn, up 58% YoY, thanks to full consolidation of YKM. In 2013, the company targets to open 9 new stores ( 2 Boyner, 2 YKM, 2 Franchise and 3 Carsi ) and renovate 10 stores. FIGURE 2: Consolidated Revenues - TL mn E 2013E 2014E BOYNER Source: Company and Is Investment Estimates YKM Gross margin to improve with the new terms of agreement with suppliers. Since almost 70% of YKM and Boyner s products are sourced from same suppliers, the acquisition will bring significant economies of scale in procurement. Boyner used to have better terms of contracts with the suppliers thanks to the size advantage, and now combined entity s contracts will reach a much higher size which will boost gross margins. The management expects to record 38.8% gross margin in 2013 compared to 37.2% in 2012 thanks to the new agreements. Downsizing in the head office and falling utility costs. On the operational expenses side, rent expenses are expected to decline as the combined entity will have more bargaining power vis a vis shopping mall operators. Lastly, since both entities will share a single headquarter and administrative staff, there will be notable savings at general expenses. Accordingly, the company targets to reach 9.2% EBITDA margin in 2013 with more than TL30mn synergies targeted at EBITDA level compared to estimated 6.6% EBITDA margin in FIGURE 3: Margin Estimates 36.9% 38.0% 38.2% 37.2% 38.0% 38.0% 32.3% 33.6% 34.4% 34.3% 33.4% 33.1% 7.2% 7.8% 7.0% 6.6% 7.5% 7.9% E (solo) 2012E (cons) 2013E (cons) 2014E (cons) Source: Company and Is Investment Estimates Gross Margin Op-ex/sales EBITDA Margin 4

5 Financing of the acquisition In order to finance the acquisition, Boyner secured a 4 year bank loan from ISBANK in the amount of TL130mn with a one year grace period. The interest rate on the TL bank borrowing is at TL Libor +340bps. Besides, the company issued TL100mn local bonds, also to be used the acquisition financing and organic growth opportunities as well. The floating rate bond has a maturity of 3 years with a coupon rate of 4.50% + benchmark treasury yield, (at the low end of the 4.5%-5.5% range) to be re-priced every three months and paying interest on a monthly basis. After the acquisition, we estimate Boyner s consolidated Net Debt/EBITDA multiple to hover around 2.5x in Following with the anticipated improvement in margins through synergies, we expect Net Debt/EBITDA ratio to decline 1.6x in % of the sales are made through credit cards and 72% of credit card sales are via installments. Accordingly, Boyner has around TL163mn credit card receivables from banks and the company may factor these receivables whenever it wants by bearing an upfront charge. Prior to 2010, Boyner used to finance its operations via liquidation of credit card receivables. This enabled the Company flexibility to meet working capital requirements when needed. However, the liquidation costs associated, which were recorded as credit card receivables early collection expenses were quite high and made up the major financial expenses of the Company, putting pressure on the cost side. Therefore from 2010 onwards, instead of bearing the high costs on credit card receivable financing, the Company started to finance the major portion of its receivables via bank loans. We don't take these credit card receivables into account in our net debt calculation. FIGURE 4: Financial Loans and Credit Card Receivables- TL mn E (solo) 2012E (cons) 2013E (cons) Financial Loans Credit Card Receivables Balances Source: Company and Is Investment Estimates Weak 4Q results are ahead due to one-off acquisition costs. In 2012, the company is expected to incur TL12.4mn (already recorded TL7.8mn in 9M12) acquisition related one-off costs, including legal consultancy and managerial advisory and TL9.5mn financial expenses (the layoff costs due to downsizing of headquarter personnel) has incurred due to YKM acquisition. Hence, we calculate TL9mn net income in 2012 vs TL24mn posted in Therefore, all one-off charges will be reflected in 2012 financials, while the impact of synergies will be fully visible in

6 Valuation FIGURE 5: DCF Summary - TL mn We have updated our DCF valuation for Boyner (including YKM) and reach to an equity value through blending the outcome of DCF and peer comparison analysis (based on peers median 2013E EV/EBITDA multiple of 8.3x). We have penciled in potential synergies through the YKM acquisition with a conservative approach compared to company guidance. Accordingly, we have came up with a 12 month price target range of TL 7.31/share which implies 40% upside potential. 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E TV Net Sales 937 1,482 1,675 1,878 2,106 2,338 2,595 2,849 3,126 3,403 3,697 11% growth% 58% 13% 12% 12% 11% 11% 10% 10% 9% 9% Gross Profit ,084 1,189 1,294 1,406 Gross Margin 37.2% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% EBIT Tax on EBIT Depreciation Brand license income C.card rec. discounting costs EBITDA EBITDA Margin 6.6% 7.5% 7.9% 8.0% 8.2% 8.4% 8.8% 9.0% 9.3% 8.8% 9.0% 8.5% Change in Working Capital Capex Free Cash ,051 Disc Factor DCF Terminal Grow th Rate 4% Terminal Value 617 Firm Value 1156 Net Debt 2013E -259 Weight Equity Value % Implied Equity Value from Peers % Fair Value Estimate 785 Minority Stake -112 Target Mcap Current Mcap 481 Upside 40% Target Price - TL / share 7.31 Source: Is Invest Estimates Main assumptions in our valuation model Our projection period is five years covering 2012 to In-line with the Company s store roll-out plan including Carsı and YKM, we expect Boyner s total number of stores to reach 260 in 2012 from 142 in 2012 assuming 10 store openings on average per annum ( 4 department, 2 franchise, 4 Çarşı). We assumed YKM to maintain its historical store growth rate. Accordingly, we estimate YKM s total number of stores to increase 102 in 2022 from 65 in We project revenues to grow at a CAGR of 11% during our projection period on the back of the assumptions of 9% l-f-l growth and new store impact. We estimated consolidated gross margin to improve 38% in 2022 from estimated 37.2% in 2012 thanks to increased bargaining power after YKM acquisition. Assuming limited synergies at general management expenses, combined entity s op-ex/ sales ratio is expected to decline 31.3% in 2022 from 34.3% in As a result, average consolidated EBITDA margin is calculated to be 8.5% (previously 7.5%) during our projection period compared to company s c.10% EBITDA margin target including synergies. Our cap-ex assumptions comprise of both maintenance cap-ex and investments for store openings. In-line with the Company guidance, we pencil in TL1.5mn and TL0.9mn cap-ex per sqm for new Boyner and Çarşı store openings, respectively. 6

7 Revision in our Estimates Following updated company guidance, we revised our revenue and EBITDA margin estimates. You may find in Figure 6 the summary of our revision in estimates. FIGURE 7: Peer Comparison FIGURE 6: Revision in Estimates TL mn 2012E 2013E 2014E 2012E 2013E 2014E Revenue EBITDA EBITDA Margin 6.6% 7.5% 7.9% 6.7% 7.3% 7.3% Net Income Source: Is Investment Estimates International Peers New Estimates Old Estimates Boyner s 2013E and 2014E EV/EBITDA multiples (adjusted for minorities) of 7.6x and 6.5x remain well below the global peers median of 8.3x and 9.1x for the same periods, respectively. The stock s 2013E and 14E P/E multiples trade 2% and 19% discount with respect to its international peer s median of 14.3x and 12.6x, respectively. Company 2013E 2014E 2015E 2013E 2014E 2015E 2013E 2014E 2015E GAP INC/THE USA J.C. PENNEY CO n.a n.a n.a 22.8 USA MARKS & SPENCER BRITAIN ETAM DEVELOPPEME FRANCE TALLINNA KAUBAMA ESTONIA FAST RETAILING JAPAN ROBINSON DEPT ST a.d n.a THAILAND HENNES & MAURI-B SWEDEN NEXT PLC BRITAIN INDITEX SPAIN DEBENHAMS PLC BRITAIN Median BOYNER TURKEY premium/discount -31% -36% -46% -9% -29% -35% -2% -19% -34% Source: Bloomberg and Is Investment Estimates Bloomberg Estimates EV/Sales EV/EBITDA P/E Country 7

8 This report has been prepared by İş Yatırım Menkul Değerler A.Ş. (İş Investment) solely for the information of clients of İş Investment. Opinions and estimates contained in this material are not under the scope of investment advisory services. Investment advisory services are given according to the investment advisory contract, signed between the intermediary institutions, portfolio management companies, investment banks and the clients. Opinions and recommendations contained in this report reflect the personal views of the analysts who supplied them. The investments discussed or recommended in this report may involve significant risk, may be illiquid and may not be suitable for all investors. Investors must make their decisions based on their specific investment objectives and financial positions and with the assistance of independent advisors, as they believe necessary. The information presented in this report has been obtained from public institutions, such as Istanbul Stock Exchange (ISE), Capital Market Board of Turkey (CMB), Republic of Turkey, Prime Ministry State Institute of Statistics (SIS), Central Bank of the Republic of Turkey (CBT); various media institutions, and other sources believed to be reliable but no independent verification has been made, nor is its accuracy or completeness guaranteed. All information in these pages remains the property of İş Investment and as such may not be disseminated, copied, altered or changed in any way, nor may this information be printed for distribution purposes or forwarded as electronic attachments without the prior written permission of İş Investment. ( This research report can also be accessed by subscribers of Capital IQ, a division of Standard & Poor's. 8