The company
Turkcell had 31.8 million subscribers in Turkey as of Dec. 31, 2006 (up 14% from the previous year), and a domestic market share of roughly 60%. The company's GSM network reaches 97% of Turkey's population and has international roaming agreements with close to 540 mobile operators in 193 countries. In addition, Turkcell, through its subsidiaries, has mobile phone operations in Azerbaijan, Georgia, Kazakhstan, Moldova, Northern Cyprus, and Ukraine, with roughly 11.8 million customers as of Sept. 30.
How's that for a brief summary?
I know, I know -- these numbers pale in comparison with U.K.-based Vodaphone's (NYSE: VOD) 191-million-plus subscribers, not to mention the estimated 300 million customers now using China Mobile's networks. But I like Turkcell's growth prospects because of its focus on fast-growing, underpenetrated markets with favorable demographic trends.
Take Turkcell's home market: According to the country's Telecommunications Authority, mobile phone penetration rates in Turkey stood at 60% as of Dec. 31, 2005, well below the European average of 90%-plus and leaving ample room for growth. Likewise, the Turkish population is extremely young, with an average age of just 29 years, and is growing at roughly 1.4% a year, compared with the stagnant or declining populations of Western European countries. As this growing population becomes increasingly affluent -- the Organization of Economic Co-operation and Development (OCED) expects Turkey's economy to expand by 5.5% in 2007 and a further 6% in 2008, with a decline in the unemployment rate to 9.5% from 10.1% -- I suspect you'll see a pickup in mobile penetration rates, as well as more subscribers moving to higher-value-added mobile services, which made up only 14% of Turkcell's revenue in the most recent quarter.
Hmm. A company holding a dominant share of mobile communications serving a young and growing population in a rapidly expanding economy? Sounds like a pretty profitable recipe to me.
I should also point out that Turkcell's operations in other countries aren't exactly growing at a snail's pace, either. The Ukraine subsidiary Astelit has garnered roughly 4.7 million subscribers and a 12% share of that market since its formation in 2005, and Turkcell remains committed to entering new markets, as exemplified by its recent announcement that it will bid in the expected auction of Saudi Arabia's third mobile license. The fact that it just arranged for an unsecured $3 billion line of credit to be used for "international" expansion is a pretty good indication of how serious it is.
Before turning to the issue of valuation, I do have to point out that shares of Turkcell aren't for everyone. Only 23% of the company's shares are freely traded: The rest are owned by Nordic telecom firm TeliaSonera, Turkish financial group Cukurova, and Russian private equity firm Alfa. To say there's a certain amount of tension among these groups is an understatement. Furthermore, while Turkey's economy is projected to expand rapidly over the next few years, the journey is likely to be volatile: Trading in shares of Turkcell will mirror the ups and downs of the Turkish economy.
That being said, I believe that long-term investors with a high risk tolerance should dial up the company's financials and take a look, especially in light of Turkcell's attractive valuation. At a recent price of $14 per share, Turkcell trades at roughly 12 times fiscal 2007 estimates of $1.17 per American depositary share, an 11% discount to its projected five-year earnings growth rate. Throw in the fact that the shares pay a dividend of around 3.3%, and I'd say you have an attractive investment opportunity on your hands.
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