Is TKC Stock a Buy? Communications companies aren’t well known for their ability to generate large amounts of growth. In fact, the average enterprise in the sector sees a year-on-year increase to its top line of just 7.86%.
But that’s not surprising. The telecommunications business is notorious for being a capital-intensive endeavor. This is due in no small part to the fiercely competitive nature of the industry and its rapid pace of technological change.
Indeed, in order to keep up with the demand for ever more data, telecom companies must constantly invest in new infrastructure and innovation. This has led to increased costs and a need for efficient capital management.
Furthermore, in order to survive and thrive in this environment, firms must be agile enough to quickly adapt to new market conditions. They must also be aware of the environmental impact of their operations and work to minimize it or face the consequences from investors and the market at large.
As such, long-term shareholder value is essential in this sector, as is differentiation through unique networks and services. Spectrum auctions are another important aspect of the industry, as these can provide companies with the opportunity for valuable network expansion.
Therefore, it’s something of a miracle that Turkcell Iletisim Hizmetleri, Turkey’s leading mobile phone operator, should clock in revenue increases of 56.7% in the third quarter of 2022.
In fact, the company reported a blockbuster earnings card for the latest period, suggesting the firm offers a degree of unrecognized upside in an otherwise downbeat market.
So, in light of these positive developments, should investors now consider Turkcell a solid buy at its current price?
Turkcell is a leading technology services provider operating a variety of fixed and mobile telecommunications networks. Founded in February 1994, the firm offers several voice, data and TV solutions to its growing customer base, and is the only Turkish company listed on the NYSE.
In addition, TKC also manages subsidiary businesses in Northern Cyprus, Ukraine, and other territories in the vicinity, and holds an 80% stake in Belarusian Telecommunication Network JSC.
Turkcell Is Improving In Every Key Metric
It isn’t just TKC’s sales volume that’s increased recently. In fact, at 2.4 billion Turkish Lira, the company’s net income rose 67.6%, while the business added more than 1 million net subscribers throughout the last three months.
On top of that, the firm recorded remarkable growth in its fixed broadband business for the period ending September 30, 2022. Fiber subscribers increased 14% to 2.1 million, with IPTV (Internet Protocol Television) seeing another 219 thousand users added during the same timeframe.
Subscriber trends in its mobile segment are also encouraging. Turkcell added 1.6 million postpaid customers to its roster year-on-year, and another 506 thousand prepaid customers on a quarter-by-quarter basis. Average mobile revenue per unit increased by 48.5%, while monthly churn remained static at 1.9%.
From a broader strategic perspective, Turkcell’s focus on “monetizing the digital transformation” is beginning to take shape too. Stand-alone revenues in its Digital Services & Solutions wing were up 29%, with annual Digital Business Services growth even better at 107%.
Political Risk Is Significant
It’s difficult to overplay just how precarious the political situation is in Turkey right now. The country survived an attempted coup d’état in 2016, and was recently involved – if only adjacently – in the conflict between Armenia and Azerbaijan over the contested Nagorno-Karabakh region.
Meanwhile, Turkey occupies a strategically important position at the heartland of Eurasia and, for centuries, has been a key crossroads between the Occidental and Oriental worlds. Obviously, the nation was central in both the Ottoman and Byzantine Empires, yet, in more recent times, it’s also been an important player in European security through its membership of the North Atlantic Treaty Organization (NATO).
But despite being seen as an ally of the United States, Turkey has increasingly shown discontent with some of its policy initiatives. The aftermath of the failed overthrow of power six years ago hasn’t helped relations with the U.S. either, as president Erdogan has taken an increasingly autocratic approach to governance in response to what he believes was a Western-backed act of aggression.
Indeed, for American shareholders, the turmoil that always seems to simmer away underneath the region’s surface may be off-putting, adding more peril to what should otherwise be a relatively safe investment.
The company even alluded to this state of affairs in its quarterly press release, ascribing the inflationary pressures and commodity price rises of 2022 to “geopolitical tension” in the country.
Moreover, as a company operating primarily under Turkish jurisdiction, Turkcell Iletisim Hizmetleri also suffers from a significant exchange rate risk.
For instance, the Turkish Lira has been depreciating against most major currencies for the past few years, and that trend is expected to continue. This has directly impacted Turkcell’s operating exposure, as most of its costs are denominated in the local currency. Exchange rate fluctuations also add another layer of unpredictability to TKC’s business, further complicating investor confidence in the firm.
Is Turkcell A Buy?
So good was TKC’s performance this year that the company has had to upwardly revise its guidance for the second time in 2022.
Indeed, having initially forecast 30% revenue growth in February, the firm increased that to a figure ranging from 47% to 48%. And it’s the same story with EBITDA too, which it expects to hit roughly 21 billion Turkish Lira from an earlier prediction of just 19 billion.
However, Turkcell’s share price has been on a tear over the last few months, rising more than 80% since its summer lows of $2.37. That said, the business trades at a low forward non-GAAP PE ratio of 8.64, which is backed up from a valuation point of view with solid net income margins of 13.4%.
The only issue for investors is how to weigh the substantial risks of a company operating in such a volatile territory with its excellent growth potential. If you’re happy with that trade-off, TKC might be for you – but, for many, the clear downsides might be too much to handle.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.