DCF Valuation | Şişecam 24q4

Türkiye Şişe ve Cam Fabrikaları A.Ş. | 2024 FY

A Brief Introduction

Şişecam is among the companies I follow and since 2019, I publish my notes for its financials for every quarter, and valuation outputs once a year. Occasionally, I also write on important events such as mergers, acquisitions and share buybacks. And these are solely my own opinions, which are independent from third parties, all for free and open to the public. However, I remind you that these are not investment advice and in no means buy or sell suggestions. Please read the disclosure for further information.

When it comes to DCF analysis, there were (and still are) some setbacks. Due to application of inflation accounting, financial statements are adjusted since 2023/q4. Companies provide a one-year backward comparative data, but this is not sufficient for a deep, healthy research. In principle, I do maintain my own data sets and update those with the inflation indexation, but these changing figures unfortunately bring a high deviation to the forecasts and might also carry unintended errors. Below you can find my calculations and the template based on the Turkish Statistical Institute’s inflation data.

Adding geopolitic risks, economic downturn and shrinking profitability to the equation, this bleak performance of the company is already expected by many investors. And it is not a hindsight bias. Because Şişecam’s products are cyclical and recession in Europe was long ago priced in. “When the things will be better?” is an important question and assumptions are subjective.

So let’s have a look at the key valuation metrics first, which shape the DCF Valuation.

Key Valuation Metrics

In the first chart below, I have plotted the cumulative operating income data for Şişecam in columns. The most recent figure is indicating an operating loss of 4,269 million TRY for the year 2024. Since the end of 2022 there is a decline. Challenging conditions in the export markets, low growth in China and delayed recovery in Europe hit revenues. As you can follow through blue line, operating profit margin was in continuous, free fall. Sales and marketing expenses are two-thirds of operating costs and indirect labor costs, which are recorded under general administrative expenses accounts for 29% of consolidated OPEX.

The highest figure for the operating margin on the chart is 12.86% and the most recent is minus 2.30%. The developments that I mentioned above is visible in the trend line. CEO of the company, M. Görkem Elverici shed light on the recovery path with the following comments: “Our priority for the first half of 2025 is to optimize our cost and expense structure, carefully manage our investment expenditures, and establish a solid foundation for our cash flow.“.

The next chart is also important to comprehend how efficiently Şişecam uses its capital and how much return does the company generate on its investments. Return on Equity (RoE) for Şişecam at the end of 2024 is 2.53% with the last twelve month calculation. This is also way below 38.50% peak and last years figure of 15.33. Return on Invested Capital (ROIC) is also declining steeply and with the latest financials it is minus 3.01%, again LTM. For both charts, I have also added trend lines to have a glimpse on the pattern.

Following that, let’s have a closer look at the basic Earnings Per Share (EPS) data and stock price in the market. Türkiye Şişe ve Cam Fabrikaları A.Ş. shares made an intraday peak at €55.64 and 54.50 based on closing price. This was last year, at the end of May. Since that day investors are unhappy with falling prices and missed opportunities. And if we examine the EPS data, we can find a logic for that decline. As the profitability melts down share price falls and if there is a hope in the horizon for a recovery it climbs up. Therefore its important to cover these metrics in the intrinsic valuation.

Finally, I have examined the Margins of the Şişecam for the last 2 years on the following chart. Black line shows the Gross Profit Margin. The highest value is 37.12%, which is good. Actually among the three margins I added on the chart that’s the most resilient one. Blue line depicts the Net Income Margin and after a bumpy ride it is at 2.82%. The fall is drastic here, but not the worst if you compare it with the EBIT Margin (yellow). It is disappointedly collapsed. This year, I have reminded on previous reports that first time I record a minus figure here. Than emphasised that I expected it to continue. And now hoping that this was the last minus figure.

DCF Analysis & Intrinsic Value

Discounted Cash Flows Valuation 2024/q4

Şişecam is is among the world’s most prestigious manufacturers and this year it will celebrate its 90^th anniversary. The company has a long tradition, crucial resources, worldwide facilities and huge experience. Şişecam aims to become one of the top three global producers in all its core business lines and it is already in top five. Investments keep rolling o and in my opinion this aim is within the reach. My narrative still adheres to previous long-term targets, but this time it is built on poor margins. It is a return to profitability story and grounds for that again comes from the company guidance:

“We anticipate that the measures we have implemented will start delivering positive results from 2025 onward. Given the current low point in the economic cycle, we believe a cautious, yet opportunity-driven approach is essential.“

Below you can find the assumptions, current figures and output of my valuation that reflects the Şişecam’s 2024 annual report.

Şişecam recorded a 40.24% compound annual growth in the past decade and due to recent downturn revenue growth crashed to minus 4.99%. I began with a 20.00% and assumed a move to 15.00% line gradually. In the terminal value it will align to economy’s growth at 10.00%. When it comes to pre-tax operating margin, I accepted this years figure as an outlier at the negative side, and started with 6.00%. The company’s margin was solid around 18%, but I cut it to 16.00% for the steady state anyway. The other variables and shifts are given above.

Current long-term bond rate is at 26.21%. The valuation outcome is 33.45% undervaluation. Uncertainity in politics, and exchange rate risk continues and recession fears loom. Profitability is the main problem and in this valuation, better cost management is assumed. On Dec 29, 2023 prices for SISE and BIST were 45.20 and 7,470.18. At the end of 2024 prices were 41.52 and 9,830.56 In this regard, SISE share price decreased 8.14% in 2024 and underperformed compared to BIST.

The closing price for the SISE stocks was 35.46 TRY per share on the same day. The intrinsic value that I have calculated is 53.29 TRY per share. According to my assumptions and expectations Şişecam stocks is 33.45% undervalued, which also indicates a 50.27% upside potential.

Considering the inflation, 2 year long decrease in all metrics and possible recovery it does not stand too assertive. I am aware that recession risk and not promising revenue growth, but markets are like this. In an unexpected moment, if a positive news arrives than it would not be possible to catch the return train. Instead of timing the market I’d rather buy and wait for a longer period. For example, Germany’s a trillion euro package and expectations of huge investments on infrastructure and defence changed the market mood instantly. I have added simple moving averages for 20 and 50 days to the closing prices and recent jump is one of the rare daily returns for Şişecam. If it sustained, passing both SMA values might lead to a better pricing momentum. The chart I have prepared via Python also shows the 20-day rolling volatility and I guess this gives a better idea in risk/return front.

Based on all these analysis and having the risk of my own, I have already made additional purchases to my portfolio on the previous price retreats. But I’d like to remind that all calculations might be prone to unintended errors and even if they are perfect, markets have their own dynamics. Besides, having find such opportunities, does not mean that value-price gap converges immediately. On the contrary, price may continue to fall. So please read the “Disclaimer” and act on your own risk.

Last but not least, I have also checked the Bloomberg terminal for Analyst Ratings today (well after I have concluded my DCF Analysis). I have presented the forecasts of 12 distinguished investment banks and institutions below. Range is wide from 44.40 to 72.44 per share value and various upside potentials. My intrinsic value forecast of 53.29 TRY per share value stands below the average of analysts twelve month target prices. This estimates are dated in terminal from 24.12.2024 to 04.03.2025, and most of those are recent.

The tables, charts and analysis that I have presented here are based on the official financial statements of Türkiye Şişe ve Cam Fabrikaları A.Ş.. In order to avoid mistakes you can find detailed explanations, news and financial statements from the official website. For further documents and news please check Şişecam Investor Relations use their official figures to avoid unintended errors or miscalculations. I do not provide any financial recommendations and please also do read the disclaimer. I hope this figures, analysis and calculations are also useful for you, too.

With this opportunity, I’d like to thank to Şişecam management and all employees for their efforts and performances.
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You can also read my recent works for Şişecam by clicking the links.

Hisse Analiz | SISE Fiyat, Getiri, İstatistikler ve BIST100’e göre performans
Şişecam 2024/q4 Genel Görünüm, Temel Analiz ve Finansallar

I wish you all the best.

Ergun UNUTMAZ, 09.03.2025

Disclaimer

General information and statistics that are provided herein this article acquired from official sites and public resources. Thoughts and comments belong to the author and do not represent any other third parties’, public/private institutions’ or organisations’ point of view.

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