If Peter Schiff is right, then by this time in 2020 we’re going to be in a recession and the government won’t be able to bail us out, but it’ll try, which will end in massive currency destruction.
This brings me Turkcell (TKC, Financial). The company provides mobile phone service in Turkey and subscribers in more than 200 other countries through roaming agreements and investments across the region. It has 26 million prepaid and 9 million postpaid users.
Turkey borders Sryia to the north, and that has created a pretty volatile scenario for people in the Middle East. Turkey also has been in conflict with the Islamic State of Iraq and the Levant as part of the spillover of the Syrian Civil War.
That has also been very bad for its currency, the Turkish lira, which is down to just 0.21 for every U.S. dollar. Before ISIS, the Turkish lira was 0.60 to 0.70 per dollar. That makes a big difference when you are an investor.
For example, in the latest quarterly earnings call, Turkcell posted subscriber gains that drove Ebitda up 44% with net income rising 9.2% to over 500 million on revenue of 4.76 billion Turkish lira. Data and digital service revenue were up 16% to 2.77 billion, and wholesale revenues increased 52.8% to 166 million, in line with the company’s three-year guidance projections issued last month.
For the year, Turkcell will earn over 2 billion Turkish lira on more than 18 billion in sales. Growth of cell phones isn’t a U.S. phenomenon, and if this was 2010, those numbers would be three times higher in dollar terms. Imagine if the company were generating $1.3 billion (USD) of net income annually. With its current multiple, that would make it a $16 billion company.
In 2009, this stock was $15 a share, but what really matters is what happens going forward. The fight in Sryia is over for now, and much rebuilding will need to be done. But it’s a risk worth taking at this price. With rebuilding will hopefully come a stronger currency in Turkey. Also, if the dollar falls, which many believe it will, then foreign investments will do better, at least in the short term.
Turkcell is not a growth story. It pays a solid dividend (4.07%), generates above-average returns on equity (12.77%) and assets (6.04%), and has a consistent revenue stream. It also sees the potential for 15 million new users on its 4.5G channel that will help it grow to 85% smartphone penetration across its base by 2020.
Yet, the company is investing in new businesses like energy where it is hoping to drive 1 million solar energy customer producers by 2020. Only time will tell how that will impact the company’s financial performance. Investors should be wary of these investments; however, if they pay off, the company’s management will look very smart.
The stock is worth a flyer
Turkey is the youngest country in Europe and has the 17th largest economy in the world, where the average person is connected to the internet seven hours a day. Social media and online video consumption is among the top 10 globally. Presumably the population will continue to grow with its youth coming of age, having babies and a desire to stay connected. With the war in Sryia, if the currency has any uptick versus the dollar, the stock price will move along with it.
Disclosure: I have no position in Turkcell.
