Leading Turkish Stock on XU100

2021年10月26日

EREGL

First of all, My analysis method consists of Fundamental and Technical evaluations, which I think the best way to find out where the stock supposed to be going. Therefore, I made an analysis of BIST:EREGL for foreign investors who believes in the company that they invest in applying long term investment plans. Although Turkey has some political problems, which are occurred in its regions, BIST:EREGL does not seem to be affected negatively as it offers dividends each year, so Let's have a look at my analysis;

Fundamental Analysis of EREGL

Q3 Financial Statement of the company is expected to be published within the first week of November. Therefore, it is crucial to evaluate the current financials as it might bode well in all aspects now.

- Average Price/Earnings Ratio of Iron & Steel Companies in XU100 as of today is 18.02 whilst EREGL has an impressive ratio of 8. Besides,P/E Ratio of KRDMD, which I think it might be comparable with EREGL in terms of Market Cap, is 4.27. However, EREGL is a company which is almost 3X bigger than KRDMD in terms of Market Cap and these figures creates a dominant company, which is are not thought to be affected by political instability. Therefore, EREGL have always been a company whose customers are mainly foreigners and foreign investment companies.

- EPS jumped from 0.24 to 1.65 in the same period between 2020 and 2021 and it reflected to the price of share positvely. The reason why it happened is that EREGL is a profitable company without a huge debt. The company itself can easily compensate its debt and manage its business well. I will dive into this below.

- Leverage Ratio of EREGL was calculated as $0.12, which means that each $0.12 from $1 of revenue goes to its debt to cover. This is an outstanding ratio for a Iron & Steel company with huge volumes.

- Net Working Capital of the company is $2.243.971.00, meaning that the company has a subtantial amount of dollars, which can be used to make the company bigger and manage bigger orders well.

Production

- EREGL is the leader of producing and exporting of Roll and Rolled Sheet Metal in Turkey. It sells its products to mostly domestic markets through USD, and one of the biggest local customers of EREGL is BIST:OZBAL, whose stocks are being traded on XU100 (BIST100). According to Q2 2021 Financial Statement, 2.150 tonnes of Metal were produced in EREGLI factory, while 1.998 tonnes of Metal were produced ISKENDERUN factory respectively, so there is a balance of production between each factories. It alseo provides the company a greater flexibility to manage orders depending on the region.

- In 2020, 16.6 Million Tonnes of Turkish Steel were exported, whilst 12.5 Million Tonnes were imported. Altough export is more than import, it does not reflect to financials positively since EREGL's export volume is just %20.2 (Q2 2021) and sales are dependant on the domestic markets.

Currency Effects and Exchange Risks


- The main export Market of EREGL is the European Union and therefore it is supposed that earnings are based on EUR while costs are dependent on USD. This is an important factor in analyzing the company because Strong EUR against USD provides EREGL a great advantage for the company on its earnings. However, in the case of Strong USD against EUR (as we have right now) EURUSD, it might become a burden on company's financials. The company mostly exports to the EU Market and that's why weak EUR/USD rate is not a good sign to expect positive currency exchange yields on the financials.

Effects of Chinese Iron Ore Futures on EREGL

- Having made a research to find out what leads EREGL to increase, I realised that there is a correlation between SGX TSI Iron Ore, which stands for Chinese Iron Ore Futures (SSIO). It is undeniable the fact that the price of Iron has a huge impact on EREGL's earnings and it is reflected to the balance sheet of the company.

Technical Analysis of EREGL

Having read all the above, It's suggested to take into account Iron Ore Futures (SSIO) since it has a crucial impact on the company's earnings.

- $1.90 is seen as a strong support while $2.07 seems as a pivot point, at which we can forecast the direction of the stock.
- With the effects of Positive news, such as better than expected Financials or Huge Orders, 1st and 2nd Resistance levels might be caught in a short period of time. These levels are $2.18 and $2.29 respectively.
- TP Level is calculated as $2.44 and it might be a nice target for the ones who aim short term yields. However, $2.66 would be tried if everyting mentioned above would be realized.

AS ALWAYS, DO YOUR DUE DILIGENCE ON ANY STOCK BEFORE BUYING AND SELLING, HAPPY INVESTING!