Turkcell Iletisim Hizmetleri AS TKC, the largest integrated telecom operator in Turkey, has been facing difficulties for quite some time now. Interestingly, the problem is not operation or management related issues but is primarily macroeconomic factors.
Notably, the Turkish Lira had touched a record low value of 2.60 against the US Dollar in Mar. 5, 2015. The currency has depreciated around a strong 10% year-to-date which led to a stock price decline of a heavy 18% for Turkcell over the same time.
The value of Turkish Lira has been continuing the downtrend owing to heightening of the political struggle between President Recep Tayyip Erdogan and his council of ministers and Erdem Basci, the governor of the Central Bank of the Republic of Turkey (CBRT).
Erdogan demands further interest rate cut by the central bank in order to control inflation. He accused the CBRT of maintaining a high-interest regime under pressure from foreign lobby which resulted in severe monetary crisis and flight of capital from Turkey.
The general election in Turkey will take place in early June 2015. Erdogan has stated that he will more closely and intensely monitor the central bank if elected to power again. Many economists and political analysts are viewing this statement as the return of controlled economic structure in Turkey contrary to the open door economic environment.
Turkcell is a major business organization in Turkey. As of Dec 31, 2014, the company had 34.6 million subscribers in Turkey. Turkcell also operates in nine countries in Asia and Europe through various wholly owned or partially owned subsidiaries.
Together, the company currently serves around 71.5 million subscribers. Depreciation of the Turkish Lira against the US Dollar is likely to negatively impact the company’s foreign exchange gains.
Furthermore, Turkcell has decided to launch 4G LTE (Long-Term Evolution) service in Turkey this year. Meanwhile, the company is also investing in the fixed-line broadband network. Deployment of 4G LTE and fixed-line broadband network infrastructure is highly costly affair.
The infrastructure has to be purchased from either European or American vendors. A depreciated currency will thus significantly increase the company’s expenses thereby severely affecting its future financial results.
Stocks to Consider
Turkcell currently carries a Zacks Rank #5 (Strong Sell). Better-ranked non-U.S. telecom operators include China Mobile Ltd. CHL, China Telecom Corp. Ltd. CHA and Phillippine Long Distance Telephone Co. PHI. All three stocks currently carry a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment