Turkcell Still a Great Growth Play

It's been solid so far this year and has plenty of ways to expand

   

Turkcell Still a Great Growth Play

best stocks for 2012 logo Turkcell Still a Great Growth PlayEurope may be mired in crisis and global growth may be slowing, but it is business as usual at Turkish mobile giant Turkcell (NYSE:TKC).

Turkcell released second quarter results late last week. Group revenues rose by 13% and Turkish revenues were up 9% — not bad at all given that the country shares borders a Europe mired in crisis and a Syria in the midst of a civil war that threatens to destabilize the region.

Oh, and net income was also up 13%.

These results came in ahead of expectations and sent shares sharply higher. After bottoming out in late May, Turkcell shares are up by fully a third. Not a bad two-month run, all things considered.

TKC 300x212 Turkcell Still a Great Growth Play

Looking under the hood, the there is also a lot to like. Subscribers of Turkcell Turkey rose almost 200,000 to 34.7 million during the quarter, despite intense competition from international telecom juggernaut Vodafone (NASDAQ:VOD).

Plus, the mix of pre-paid and post-paid subscribers continues to shift in favor of more profitable and consistent post-paid contracts. Average revenues per user continue to climb due to increased data usage and, for the quarter alone, saw an increase of nearly 6%.

Smartphone usage — with the lucrative data plans it entails — also continues to rise, although the smartphone penetration rate remains low at 15%.

This is about as good of a story as you can find in an emerging market stock of Turkcell’s quality. As a country, Turkey’s cell phone penetration rate is only 88%; in most advanced countries, the number is far in excess of 100%. (Yes, there are more mobile devices than people. Are you surprised? I didn’t think so.) This means that Turkcell can grow through three distinct avenues:

  1. Reaching new customers who previously did not own a cell phone,
  2. Converting pre-paid customers to more profitable post-paid contract customers, and
  3. Upgrading regular feature-phone customers to smart-phone customers.

Bottom line: Turkcell is fine way to invest in the long-term growth of Turkish living standards and the rise of the Turkish middle class.

Turkcell is also an interesting contrarian play. As I wrote last month (see “Bring in the Tanks”), the struggle for control of Turkcell’s board has made the stock something of a pariah. Turkcell hasn’t paid a dividend in two years because the two rival shareholder factions can’t sit in a room together for long enough to agree to pay it.

The boardroom circus keeps a lid on share prices, but I’m alright with that. It will get fixed, and soon. The Turkish government is losing patience, and the fiasco has become something of a national embarrassment. In the meantime, we’re able to accumulate shares of one of the finest emerging market stocks on the market at very reasonable prices. Turkcell sells for just 11 times expected 2013 earnings.

Turkcell was my choice in InvestorPlace’s Ten Best Stocks for 2012 contest (for which it is currently in second place), and I reiterate my “buy” recommendation today.

Charles Lewis Sizemore, CFA, is the editor of the Sizemore Investment Letter, and the chief investment officer of investments firm Sizemore Capital Management. As of writing this, Sizemore Capital was long TKC.


Article printed from InvestorPlace Media, http://investorplace.com/2012/07/turkcell-still-a-great-growth-play/.

©2014 InvestorPlace Media, LLC

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