Investing in Turkish Telecom

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With the rapidly approaching “Fiscal Cliff” in the United States, and the ongoing debt crisis in Europe, it is no wonder that many investors are turning to other economies as a means to generate returns. To my mind, Turkey represents a particularly compelling place to invest, due to its stable growth and relative political stability. The biggest Turkish equity traded in the US is Turkcell (NYSE: TKC), the country’s largest wireless carrier. In this article I will examine some of the reasons why this telecom giant might be a good bet.

Why Invest in Turkey?

Recently, Fitch upgraded Turkey’s debt to investment grade, citing its healthy banking system, strong growth prospects, and declining levels of government debt. Between 2002 and 2008, the country averaged about 6% a year in GDP growth, and is expected to grow between 3.5% and 4% this year. With a young and well-educated workforce, Turkey has managed to weather the financial crisis relatively well. Turkey is one of Europe’s fastest growing economies, and has a relatively sound infrastructure. The main ETF tracking the country, the Turkish Investment Fund (NYSE: TKF), is up around 40% this year, reflecting strong investor confidence in this emerging economic power.

Turkcell at a Glance

Turkcell, with a market cap of over $14 billion and around 13,000 employees, is one of the largest mobile carriers in the region. The company serves almost 23 million prepaid customers and 11.7 million postpaid subscribers. The firm offers a range of mobile services, including 3G and Mobile Signature services. Headquartered in Istanbul, the company mainly operates in Turkey.


Q2 2012 results came in strong, with revenue up 13% and EBITDA up 8%. This represents the third consecutive quarter of double-digit growth, and was in fact the company’s best second quarter ever. With an already sizable market share of 53% in Turkey, the company is still managing to grow its customer base quickly, with over half a million new subscribers this quarter. Moreover, the firm upped its guidance for the full-year, adjusting group revenues to between TRY10.1 billion and TRY10.3 billion.

Valuations and Metrics

The stock trades at a P/E of 12.39x, just under the 14.71x industry average. The price to book is quite fair at around 2, and the operating margin is a very solid 17.96%. The return on equity is also good at 17.9%, and with a total debt to equity ratio of 25.37%, debt isn’t too much of an issue. Looking at P/E, the company is certainly cheaper than its American counterparts. Verizon (NYSE: VZ) trades at about 41x earnings, and AT&T (NYSE: T) is at around 44.6x. Moreover, both of these American companies have higher debt, and lower operating margins as well as return on equity, both under 15%.

Bottom Line

With the Turkish economy charging ahead despite the global financial crisis, it may be time to consider Turkish equities as a valuable addition to one’s portfolio. As one of the fastest growing economies in Europe, and with a strong domestic market to boot, Turkey’s stock market has been outperforming this year. Turkcell, as the primary Turkish equity listed in the US, looks like quite an attractive bet based on earnings and its valuation, and may have more upside in the near future.

DUJames has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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