Stable Ratios: Pinar Sut Outperforms Competitors

PROJECT REPORT INTRODUCTION Pinar Sut has the most stable ratios among our formerly selected ? ve companies namely Pinar Sut, Turk Traktor, Nuh Cimento, Dyo Boya and Kelebek Mobilya. Throughout the report we will present the company pro? le and analyze free cash ? ows of Pinar Sut to value the company and give a concluding recommendation to potential investors of Pinar Sut. C O M PA N Y P R O F I L E P? nart sut was founded in 1975 in Izmir, with the largest manufacturing factory of Middle East, today; P? nar is the number one known company in its sector according to AC Nielsen.

Besides milk, there are other product categories such as yogurt and cheese, that are produced by the company and company is known as an innovative producer. In 1981, P? ar Sut Company joined Yasar Holding. After than P? nar Sut became an innovative company in the industry. P? nar Sut was the ? rst company that opened a factory for producing water bottles with packing paper in 1984.

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One year after P? nar Sut was exporting bottled water to Germany. At that time, P? nar Sut introduced the ? rst integrated modern meat plant, which produces salami, sausage and several other products in a hygienic environment. In the same year P? ar Sut also introduced the ? rst marine aquaculture, and the company started to produce sea products. There were other leading innovations made by P? nar Sut such as, the ? rst hamburger meat of Turkish Republic, the ? rst pasteurized cheese, the ? rst integrated turkey production, and the ? rst organic milk in the market.

21% of total exports of Turkey on milk and milk products made by P? nar Sut, and P? nar Sut exports its products to over 29 countries including United States, European Union and Asia. Export sales are tripled since 2002. According to 2010 researches P? nar Sut exports $25 million worth of good annualy and P? ar Sut milks are entered to one of the two residents in Turkey. The total revenue of P? nar Sut in 2010 is almost 2. 75 billion TL, and the company target of growth in net sales in 2011 is between 10% and 12%. 39% of the shares of the company belongs to public and the rest of the shares are belonging to Yasar Holding. Initial public offering was made in 3rd February, 1986. F I N A N C I A L A N A LY S I S The goal is to calculate the free cash ? ows for the next 5 years and to calculate the ? rm value and stock price some assumptions and estimations has been made, such as sales growth, costs, working capital, net ? ed assets, depreciation, long term growth rate and WACC. While making the assumptions and estimations, we refer to past data, sector growth, position of P? nar Sut in the sector, some external references such as Financial Times and a report made for FAO and prepared Ministry of Agriculture and Rural Affairs in Rome, July 2007. Sales Growth Pinar Sut has a very stable sales growth ? gure in the last ? ve years except 2009. Although average sales growth rate from the last ? ve years data was above 7%, as the company has a negative sales growth in 2009; The forecasted average sales growth is 7%.

Financial Times also suggests a long term sales growth of 7. 12% on markets data section of their website. Furthermore, our forecast also complies with the expected market growth rate of 5% to 9%. Sales Growth Sales (Million TL) 2010 7% 515 2011 7% 551 2012 7% 589 2013 7% 630 2014 7% 675 Costs When the ? nancial datas of the last ? ve year is analyzed, although there are some ? uctuations the average cost is 78% of sales for Pinar Sut. Therefore, the forecasted costs is 78% of sales. Costs (Percent of Sales) Cost of Goods Sold (Million TL) 2010 78% 402 2011 78% 430 2012 78% 459 2013 78% 491 2014 78% 527 Working Capital When the ? ancial datas of the last ? ve year is analyzed, the average working capital is calculated as 10% of sales for Pinar Sut. Therefore, the forecasted working capital is 10% of sales. Working Capital (Percent of Sales) Working Capital (Million TL) 2010 10% 52 2011 10% 55 2012 10% 59 2013 10% 63 2014 10% 68 Net Fixed Assets To forecast the net ? xed assets, the arithmetic average of past data is used and the net ? xed assets calculated as 65% of sales. Net Fixed Assets (Percent of Sales) Net Fixed Assets (Million TL) 2010 65% 335 2011 65% 358 2012 65% 383 2013 65% 410 2014 65% 439 Depreciation The forecasted depreciation is 6% of net ? ed assets; calculated by taking the arithmetic average of last ? ve years data. Depreciation (Percent of NFA) Depreciation (Million TL) 2010 6% 20 2011 6% 21 2012 6% 23 2013 6% 25 2014 6% 26 Long Term Growth Rate P? nar Sut is the leader in the market, has very pessimistic horizon compared to market so we forecasted 5% long term growth rate for the next ? ve years; as suggested by external sources. However value per share with 3%, 5% and 7% long-term growth rates are also compared respectively. WACC WACC is calculated using the following formula; While computing the cost of equity, the Re = rF + ? (rM - rF) formula is used.

Beta of P? nar Sut with respect to 5 year ISE 100 and P? nar Sut stock values were too low, so Beta of P? nar Sut was taken from Bloomberg as 0. 700. Market return on ISE was taken from ? nancial news on HABERTURK as 10. 82%. Risk free return is calculated from bond returns and it is taken as 8. 2%. The corporate tax is identi? ed as 20% for all companies in Turkey. The resulting Re is 10. 03. By substituting the variables to the WACC formula, the WACC for Pinar Sut is calculated as 9. 64%. CONCLUSION The value of the company and value per share is calculated with 3%, 5% and 7% long-term growth rates using free cash ? ows.

The details of the calculations is given in the appendix (see tables 1,2 and 3). The value of Pinar Sut and value per share is 1,077 million TL and 12. 48 TL respectively with the selected long-term growth rate 5%. By the end of year of 2009, the stock price is 3. 5 TL and grow to 14,75 TL till the end of 2010 (see table 4 in appendix). Therefore, by the end of 2009, there was a huge opportunity for investors who had been willing to invest in Pinar Sut and this opportunity vanished step by step through the year 2010. APPENDIX Table 1 : The value of the company and value per share calculation with 3% long-term growth rate using free cash ? ws. Table 2 : The value of the company and value per share calcula4on with 5% long-­? term growth rate using free cash ?ows. Table 3 : The value of the company and value per share calculation with 7% long-term growth rate using free cash ? ows. 05/12 05/11 05/10 05/09 05/08 05/07 05/06 05/05 05/04 05/03 05/02 05/01 1. 550 2. 000 1. 800 1. 900 1. 600 1. 450 2. 050 1. 350 1. 650 1. 450 1. 200 1. 300 06/12 06/11 06/10 06/09 06/08 06/07 06/06 06/05 06/04 06/03 06/02 06/01 44. 500 37. 000 19. 500 17. 500 16. 000 14. 000 13. 000 6. 100 5. 800 3. 500 2. 800 2. 100 07/12 07/11 07/10 07/09 07/08 07/07 07/06 07/05 07/04 07/03 07/02 07/01 . 100 9. 400 7. 100 10. 600 6. 900 6. 300 15. 750 9. 500 18. 250 21. 000 28. 500 48. 500 08/12 08/11 08/10 08/09 08/08 08/07 08/06 08/05 08/04 08/03 08/02 08/01 17. 250 17. 250 22. 500 15. 500 16. 500 21. 000 20. 000 16. 250 17. 250 17. 500 8. 500 6. 900 09/12 09/11 09/10 09/09 09/08 09/07 09/06 09/05 09/04 09/03 09/02 09/01 3. 500 3. 400 3. 050 2. 750 9. 500 7. 100 7. 600 6. 700 8. 600 11. 000 8. 900 7. 400 10/12 10/11 10/10 10/09 10/08 10/07 10/06 10/05 10/04 10/03 10/02 10/01 14. 750 11. 750 13. 000 10. 000 8. 100 8. 600 6. 800 6. 200 7. 400 9. 200 6. 900 6. 900 Table 3 : PNSUT value per share table from 2005 to 2010