Profit rebound in Q4
Is Yatirim Menkul Degerler (IS:ISMEN) reported 2014 consolidated net profits 11% lower than in 2013 with a good performance from its bank debt investment unit (Efes NPL Asset management) partly compensating for the absence of private equity profits, which boosted 2013 results. Corporate finance fees were also strong in Q4 due to the completion of four M&A transactions. We have increased our concerns that the rising political and economic uncertainty affecting Turkey may inhibit client activity and have lowered our 2015 EPS forecast by 4%.
Q4 profit recovery
Q414 net attributable profits rose 25% year-on-year thanks to a particularly good performance from the Efes NPL Asset Management business, which makes profits from buying NPLs (non-performing loans) from Turkish banks at a discount to the recoverable amount. There was also a good performance from corporate finance fees, up over 200% y-o-y, with four deals closed in the quarter.
Cautious approach to 2015 profit forecasts
We have lowered our 2015 EPS forecast by 4% to reflect the increased political uncertainty in Turkey, which we fear could stymie deal-making and trading during the year. In addition, there is local political uncertainty arising from the June 2015 general election and a new President whose words seem to be undermining the Turkish Central Bank’s credibility.
Valuation: Implied risk premium persists
ISY is trading on a FY15e P/E of 6.0x (broader European universal bank group: 10.6x) and a dividend yield of 5.3% (broader group: 4.0%) and is on a comparable P/BV multiple for 0.7x for 2015 despite being forecast to generate a higher ROE (12.7% in FY15e versus a consensus for the broader group of 6.7%). The market continues to attach an increased risk premium to Turkish investments consistent with the current geopolitical and local economic and political uncertainties.
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