Tansas upgraded to OUTPERFORM due to aggressive growth targets and cheap valuation Tansas, one of the leading food retailers in Turkey, has been growing
aggressively after its acquisition by Dogus Group in 1999. Number of
stores reached 171 in 1H2000 through new store openings and acquisitions,
generating USD 247 mn in sales.
Tansas management set 2000 year-end revenue target at USD 650 mn on 210
stores and 170,000 sqm net sales area. Revenues are targeted to more than double to USD 1.4-1.5 bn in 2001, approaching those of Turkey`s largest retail chain Migros.
However, Tansas` profits are expected to stay in red in the next 1-2 years
due to high operational and financial expenses due to heavy investments in
store openings and acquisitions. Furthermore, Tansas` indebtedness has
risen substantially as Dogus refrained from injecting additional capital
into the Company, apparently due to outgoing legal uncertainty. However,
Dogus has finally decided to inject fresh capital into Tansas.
Tansas announced IAS consolidated financial statements in 1H2000.
Company`s 95% subsidiary Tansas Tarim (fresh vegetable and fruit) and 90%
subsidiary Tarim Gida (bakery products) are consolidated in the below
figures:
Sales USD 247 mn
Loss from operations USD 4 mn
Net LossUSD 4.7 mn
The legal problem continues, but Dogus management expects Commercial Court to decide in its favor
Tansas` sale to Dogus Group was challenged by the ex-mayor of Izmir
Municipality, who accused current Municipality management for not meeting
certain procedures while making sales decision. Ex-mayor`s application was
accepted by Izmir Administrative Court and the Tansas` sale to Dogus was
cancelled.
The case is taken to Commercial Court, which Dogus management believes
will decide in its favor as it acted in good faith during the acquisition.
Dogus Group will inject USD 10 mn into Tansas by participating in its 400%
upcoming rights issue, which we think shows its confidence that the sale
contract will be upheld by the Commercial Court. Tansas will collect USD
18 mn in this rights issue, which it plans to use in financing its
investments.
Tansas trades at undervalued multiples
Despite above-mentioned aggressive growth targets, which we find quite
reachable, Tansas shares declined by 65% in USD terms since its
yearly-peak on Jan 19th, 2000, underperforming the ISE-100 index by 42%,
due mainly to legal problems regarding its sale to Dogus Group.
Tansas trades at an EV/Sales of 0.66 on our forecast 2000 revenues of USD
600 mn and offers an upside potential of 58% to a target market cap of USD
540 mn.
We think the possibility of an adverse court decision regarding the sale
has been priced in too strongly. We upgrade Tansas to OUTPERFORM due to
cheap valuation, strong growth prospects and the increasing possibility of
Dogus retaining ownership.