ODAS Enerji Outperform August 12, 2016 ROE n.m. Analyst ... · analyst meeting on June 1, 2016. Nearly half of the construction has been completed so far and the progress appears

ODAS Enerji Outperform

Share Price

TL8.40

TL400mn

Stock Market Data (August 12, 2016)

Bloomberg/Reuters:

Rel. Performance: 1 mth 3 mth 12mth

-14% 18% 7%

12M Range (TL):

8.2

YTD TL Return: 32%

Beta (2year, w eekly) 1.00

Weight in BIST-100 -

47.6

Current 12M ago

16.1% 21.6%

Korkut Ozal 15.55%

Bahattin Ozal 15.33%

Burak Altay 15.33%

BB Enerji Yatirim 15.55%

Free Float 38.24%

Financials/Ratios 2015 2016E 2017E 2018E

Net Sales (TLmn) 485 489 491 1,060

YoY -22% 1% 0% 116%

EBITDA (TLmn) 38 61 56 354

YoY -29% 59% -8% 532%

Net Income (TLmn) -0.1 16 16 229

YoY n.m. n.m. 0% n.m.

EBITDA margin 7.9% 12.5% 11.4% 33.4%

Net margin n.m. 3.2% 3.2% 21.6%

P/E (x) n.m. 25.4 25.4 1.7

EV/EBITDA (x) 19.3 12.1 13.2 2.1

EV/Sales (x) 1.5 1.5 1.5 0.7

EPS (TL) 0.00 0.33 0.33 4.82

DPS (TL) 0.00 0.00 0.00 0.48

Div. Yield 0.0% 0.0% 0.0% 5.7%

ROE n.m. 9% 8% 53%

Analyst: Emre Cezairli Analyst: Onur Marsan

+90 (212) 384 11 36 +90 (212) 384 11 25

[email protected] [email protected]

Sales: +90 (212) 384 1155 [email protected]

12M Target Price Potential Return

TL12.18 45%

Mcap EV

Average Daily Vol (TLmn) 3 mth:

Shares Outstanding (mn):

Foreign Ow n. in Free Float :

USD135mn TL739mn

ODAS.TI / ODAS.IS

5.16 / 10.13

The Company in Brief

Established in 2010, ODAS Enerji is a company that ow ns

several entities engaged in the energy and mining sectors.

Initially established as an electricity producing/trading company,

ODAS Enerji is shifting its focus on precious metals and mining,

becoming a diversif ied and niche energy player in the Turkish

energy market.

Shareholders Structure

On the brink of becoming a solid energy play

A growth story in the making, ODAS Enerji is expanding its

operations in coal and gold mining, while its 330MW coal

power plant investment is to become operational by 2018.

A better financial performance yoy from its existing core

operations is in the cards: The Sanliurfa natural gas power

plant (NGPP) will shine with its EBITDA performance in 2016.

Initiating coverage with an Outperform recommendation and

a 12-month TP of TL12.18 with a 45% upside.

Investment Thesis:

Coal is the main story: The majority (80%) of our target price

valuation for ODAS Enerji comes from its Can coal mine

(pronounced Chan) and 330MW Can coal power plant investment

in Canakkale. We expect the plant to become operational by 2018,

while ODAS estimates an annual EBITDA generation of EUR60mn

from the Can coal power plant, and an annual EBITDA of

EUR12mn from the Can coal mine from its coal sales to third

parties. The coal from the mine has a very high average calorific

value, which will allow it to be sold separately in addition to fuelling

the mine.

Better performance in its core operations. ODAS Enerji operates a

140MW NGPP in Sanliurfa, a niche site with higher regional sales.

Last year’s performance was dismal due to cooler than normal

summer temperatures. In addition, last year farmers opted to

harvest corn rather than cotton, which has relatively lower irrigation

needs, curbing electricity demand. ODAS Enerji recorded a

consolidated EBITDA of TL38mn in FY15, TL30mn of this was from

the Sanliurfa plant. ODAS Enerji’s total EBITDA figure reached

TL13.4mn in 1Q16, mostly coming from the Urfa NGPP, while its

total electricity generation increased to 148MW in 1Q16 (vs.123

MW in 1Q15) with stronger demand in 2016.

Shifting operational focus to mining. After acquiring the Suda and

Karaagac mines in Kutahya-Usak in 2015, ODAS Enerji has further

diversified its operations to precious metals mining. It has already

started antimony mining in its Suda mine, but the mine’s measured

reserves are currently unknown. ODAS Enerji is looking to expand

its operations into gold production once it receives the pending

drilling permissions from the government.

Catalysts: i) ODAS Enerji is to disclose the Suda mine’s reserves,

which could increase the mine’s current valuation based on its book

value, ii) the continuation of the government subsidy declared on

August 9, 2016 for local coal powered plants in 2017, iii) an

increase in electricity prices and iv) earlier than expected activation

of the Can coal power plant.

Valuation: We initiate coverage for ODAS Enerji with an Outperform

recommendation and a 12-month target price of TL12.18/share,

indicating a 45% upside. We value ODAS Enerji with a SOTP

valuation.

Risks: The main risks are a delay in the coal power plant investment and lower than expected electricity demand and prices.

August 12, 2016

Please see the last page of this report for important disclosures.

2

ODAS Enerji

August 12, 2016

RESEARCH

SUMMARY FINANCIALS (TLmn)

Income Statement 2015 2016E 2017E 2018E

Net Sales 485 489 491 1,060

COGS+OPEX -453 -433 -440 -437

EBIT 32 56 51 314

Consolidated EBITDA 38 61 56 354

Profit (Loss) from Subsidiaries 0 0 0 0

Net financial Inc./ Exp & Other -33 -29 -25 -12

Profit (Loss) before Tax -1 27 26 302

Tax 0 -11 -10 -63

Minority Interests -1 0 0 9

Net Income 0 16 16 229

Ratios

EBIT Margin 6.6% 11.5% 10.3% 29.6%

EBITDA Margin 7.9% 12.5% 11.4% 33.4%

Net Income Margin n.m. 3.2% 3.2% 21.6%

Sales Growth -22% 1% 0% 116%

EBITDA Growth -29% 59% -8% 532%

Net Income Growth n.m. n.m 0% n.m.

Balance Sheet

Current Assets 195 126 120 437

Cash and Cash Equivalents 62 13 3 261

Short-Term Trade Receivables 67 52 55 112

Inventories 11 5 5 5

Other Current Assets 56 57 58 59

Long Term Assets 453 754 908 896

Total Assets 648 880 1,028 1,332

Short Term Liabilities 216 198 206 264

Short-Term Financial Loans 122 117 115 120

Short-Term Trade Payables 55 39 44 96

Other Short-Term Liabilities 39 43 47 48

Long Term Liabilities 263 497 623 638

Long-Term Financial Loans 251 483 608 621

Other Long-Term Liabilities 12 14 15 17

Shareholders Equity 169 184 200 430

T. Liabilities & S.holders Equity 648 880 1,028 1,332

Cash Flow Summary

EBITDA 38 61 56 354

WC Change -22 -5 -2 5

Operating Cash flow 24 56 54 359

Capex -205 -310 -166 -19

Investing cash flow -202 -310 -166 -19

Dividends paid 0 0 0 -23

Change in net debt -138 -276 -132 239

CF from financing activities 174 198 98 29

Key metrics

Net Debt/EBITDA (x) 8.1 9.6 12.8 1.4

Net Debt/Equity (x) 1.8 3.2 3.6 1.1

Capex/Sales (%) 42.4% 63.3% 33.8% 1.7%

WC Change/Sales (%) -4.6% -1.1% -0.4% 0.5%

ROCE (%) 7.4% 8.2% 6.2% 29.4%

ROIC (%) 7.4% 6.2% 4.6% 29.0%

FCF yield (%) n.m. -65.1% -30.1% 68.2%


3

ODAS Enerji

August 12, 2016

RESEARCH

INVESTMENT THEME Initiating coverage with an Outperform recommendation and a 12-month

target share price of TL12.18 with a 45% upside.

The Company is shifting its operational focus from solely being an

electricity producer to becoming a coal and precious metals mining

company. Going forward, we expect an extended period of government

support for local coal, which would benefit ODAS Enerji’s coal mine and

coal power plant, which is to become operational in 2H17. Activation of

the Can coal power plant by 2018 will lead to a huge upward leap in

ODAS Enerji’s operational gains. Following the activation of the

investments, we expect ODAS Enerji’s Net Debt/EBITDA ratio to retreat

back to 1.4x from its current level of 8.1x. Consequently, we forecast that

the Company will eventually become a dividend play in addition to its

operational growth.

2016 is also expected to be a strong year due to the Sanliurfa NGPP’s

solid performance. The Sanliurfa NGPP sells electricity at a premium

compared to the regulated electricity tariff due to its niche location. ODAS

Enerji’s gold mine assets and the Karaagac and Suda mines, offer further

value to be unlocked, while the share buyback program offers further

support for the share performance.

EBITDA will surge with the addition of the Can investments ODAS Enerji acquired a 92% stake in the Can coal mine in Canakkale for

TL6.5mn in September 2013. The mine turned out to be a lucrative

investment with more than 50mn tons of approved coal reserves by the

Ministry of Energy, much higher than the initial estimate of 25mn tons of

reserves. The company decided to build a power plant at this site with a

330MW capacity and secured a project finance loan of EUR116mn from

Yapi Kredi Bank (YKBNK, OP) and Halkbank (HALKB, OP), while

injecting EUR29mn as equity. The equipment for the plant was acquired

from a power plant in Europe with a net operational history of only 10

years, significantly bringing down the total investment cost as compared

to building a similar sized power plant from scratch, which could cost up to

EUR400mn. While this story is not new to investors, we believe that the

size of the contribution from the Can power plant has not fully been priced

in yet. The total CAPEX for the Can coal power plant is estimated to be

EUR145mn; EUR116mn in debt and EUR29mn in equity), while net

proceeds of TL50mn from the restricted rights issue in 2015 will be used

to develop the coal mining and precious metals mining businesses.

We conservatively estimate that the Can coal power plant and mine will

commence operations in 2018, adding a slight delay to the company

guidance of 2H17. Accordingly, we estimate ODAS Enerji’s annual

EBITDA to surge from TL56mn in 2017 to TL354mn in 2018, with a

whopping TL180mn contribution from the Can coal power plant.

COAL


4

ODAS Enerji

August 12, 2016

RESEARCH

The overall efficiency of the Can coal power plant will be 34% (global coal

power plants’ efficiency varies from 33% to 40% on average) with an

internal electricity consumption of 25-26MW per annum.

ODAS Enerji is planning to blend various qualities of lignite for usage in

the Can power plant, while its lignite from the Can coal mine is estimated

to have an average calorific value of 3480kcal/Kg, high enough that it can

be sold to third parties as well.

We visited ODAS Enerji’s Can power plant construction site for an

analyst meeting on June 1, 2016. Nearly half of the construction has

been completed so far and the progress appears to have been faster than

our conservative assumption due to a warmer than expected winter, which

elevated construction speed coupled with a double work shift with 600

active personnel on site. The assembly of the plant is expected to be

complete by June 2017 and management believes that the plant will be up

and running by August 2017.

2016 will be an operationally strong year

ODAS Enerji posted TL128mn in net sales (up by 30% yoy), a 13mnTL

EBITDA (up by 19% yoy) and a net income of TL11mn (vs. TL0.5mn in

2015) in 1Q16. After an exceptionally impressive start to the year, we

expect an operationally strong year with a higher annual EBITDA

contribution from the Sanlifurfa NGPP, currently ODAS Enerji’s largest

operational asset. There is a low base effect due to a cooler than

expected summer in 2015, which has reduced electricity demand in the

Sanliurfa region.

Farmers in Sanliurfa opted to plant corn in 2015, which requires less

water for irrigation compared to cotton, pushing down electricity demand.

This year, regional farmers have planted much more cotton vis-à-vis

2015, which will lead to higher electricity sales. The imbalance between

supply and demand in the Sanliurfa region enables the Sanliurfa NGPP to

have a niche seller status and the power plant sells electricity at a

premium of c.90%.

Sitting on a gold mine

Along with the Can coal mine, which was acquired in September 2013 at

a fee of TL6.5mn, ODAS Enerji acquired a 96% stake in the Karaagac

gold mine in Usak in January 2015. A license transfer agreement was

signed with Stratex to complete explorations on the gold site. The site

has an inferred reserve of c.157koz. The partial operation is planned to

commence in 2H17 and a EUR20mn EBITDA contribution is expected in

2018 from the gold operations.

Suda Mine’s value to be unlocked

ODAS Enerji fully acquired the Suda mine in October, 2015 for a fee of

USD1mn. The Suda mine has four mining licenses, two for operation

(gold and antimony mining) and two for exploration. Suda is located at the

Murat Mountain in the Kutahya-Usak region. The mine’s reserves have

not fully been extracted. Once discovered, the value of the mine is likely to

increase. We currently did not include the Suda mine in our valuation to

stay on the conservative side.

N.GAS PP

GOLD

ANTIMONY


5

ODAS Enerji

August 12, 2016

RESEARCH

On April 13, 2016, the Company disclosed that it had begun antimony

mining at the Suda mine.

The mine currently has an antimony production facility and management

is planning to begin selling antimony (antimony currently has a market

price of USD7,000/ton, is less costly to extract compared to gold and is

used in several industries; particularly as a flame retardant and a lead

alloy). Once ODAS Enerji discloses the margins of its antimony sales, we

assume a 100 tons in monthly sales, which could generate a revenue of

USD700k.

The Company has chosen the Cebrail Field within the Suda mine as its

primary drilling zone. A fault line in Cebrail containing antimony and gold

(with varying degrees between 0.2-1.19g/t Au) has been found. Drilling is

continuing on the Cebrail fault line to determine the gold reserve.

Depending on the results, ODAS Enerji will invest in a gold production

facility. A gold production facility with a capacity of 30-40K oz is likely to

cost around USD25mn, while a medium-sized facility could cost up to

USD50mn. Management does not expect to generate any EBITDA from

gold before 2018.

Support from local coal incentive and share buyback

On August 9, 2016, the Official Gazette declared that the Turkey

Electricity Trading Company would buy 6bn kwh of electricity from local

lignite power plants at TL185/MWh in 2016. Recall that there had

previously been some market talk regarding potential incentives for

electricity production plants based on domestic coal. The average spot

price in the day before market stood at TL131/MWh in 7M16. Currently,

sales volumes and prices have not been announced for 2017 and

onwards. The trading will start on August 22. An extension of the incentive

will present an upside to the Can coal power plant, once activateted.

Meanwhile, on February 25, 2016, ODAS Enerji’s BoD proposed a share

buyback program which was approved by the AGM. The minimum and

maximum price limits for share repurchases are 0 (zero) and TL11.43, the

highest historical closing price, respectively. The buyback fund will not

exceed TL12mn.


6

ODAS Enerji

August 12, 2016

RESEARCH

VALUATION

We value ODAS Enerji with a SOTP valuation and apply a 25% execution

risk discount to reach our target NAV. We apply the risk discount due to

the fact that most of our valuation comes from assets to be activated. Our

12-month target price of TL12.18/share indicates a 45% upside.

Sanliurfa NGPP

The Sanliurfa NGPP operates with an installed capacity of

140MWh. We assume an average 33% capacity usage rate during

our forecast period. The Urfa NGPP operates as a load balancing

power plant. Thus, it operates with a lower capacity utilization

compared to base load power plants, responding to electricity

demand only in times of need and shutting itself down automatically

in periods of oversupply.

The Sanliurfa NGPP sold electricity at c.TL315/MW in 1Q16, 17%

higher yoy compared to its 2015 average sales price of TL270/MW.

Note that the Sanliurfa NGPP sells electricity at a premium of

c.90% above the spot price. Sanliurfa is a region which currently

faces transmission line problems. Therefore,the region is unable to

receive an optimal amount of electricity to meet its demand, to the

advantage of the Sanliurfa NGPP.

We forecast that SanliurfaNGPP’s average premium over regulated

tariffs will decline to the 60% levels over our forecast horizon due

to better transmission lines and increasing regional competition,

leading to a very low EBITDA margin (less than 1%) in our terminal

forecast.

Summary NAV Table (TLmn) Valuation Method Odas' Stake Value Stake in NAV

Koprubasi HPP DCF 90% 32 2.9%

Sanliurfa NGPP DCF 100% 97 8.7%

Can Coal PP DCF 92% 762 68.4%

Can Coal Mine DCF 92% 152 13.7%

Karaagac Gold Mine DCF 96% 51 4.6%

Suda Mine Book Value Not included Not included

Voytron DCF 100% 19 1.7%

Total 1,113 1113

Net Cash (1Q16-end) -340

TOTAL TARGET NAV 773

ODAS Current M.Cap. 400

Discount to Target NAV -48%

12M target share price (TL) 16.23

Target Price after 25% risk discount 12.18

Current Share Price (TL) 8.40

Upside Potential 45%


7

ODAS Enerji

August 12, 2016

RESEARCH

Sanliurfa is a high-demand region due to farming activities and

irrigation systems.Warmer summers have a positive impact on the

Sanliurfa NGPP’s electricity sales, presenting a further upside to

sales. The high season is in July-August, when electricity

consumption per capita in Sanliurfa exceeds that of Istanbul’s.

We use a TL DCF with a 10% risk free rate and a 5.5% market risk

premium, along with a 50% weight in equity. We do not include a

terminal value in our valuation due to our assumption that the

Sanliurfa NGPP business will cease to be profitable after the spot

price premiums fall over time. Accordingly, we value the

Sanliurfa NGPP at TL97mn.

Urfa NGPP DCF Valuation (TLmn)

2016E 2017E 2018E 2019E 2020E

Sales 334.3 330.0 304.2 282.9 260.8

EBIT 57.1 58.3 29.7 6.7 -12.8

EBIT Margin 17% 18% 10% 2% -5%

Tax Rate 20% 20% 20% 20% 20%

NOPLAT 45.7 46.7 23.8 5.4 -10.2

Depreciation 4.2 4.6 5.0 5.3 5.6

Gross cash flow 49.9 51.3 28.8 10.6 -4.6

Change in working capital -0.3 -0.1 -0.5 -0.4 -0.4

Capex -2.1 -2.3 -2.5 -2.6 -2.8

Free cash flow from operations 47.5 48.9 25.8 7.6 -7.9

FCF/Sales 14.2% 14.8% 8.5% 2.7% -3.0%

EBITDA 61.3 63.0 34.7 12.0 -7.2

EBITDA Margin 18.3% 19.1% 11.4% 4.2% -2.8%

Assumptions and Results

(TLmn)

Weight of Equity 50.0% PV of FCF 97

Cost of Equity 15.5% PV of Terminal Value 0

Beta 1.00 Equity Value 97

Risk Free Rate 10.0%

Market Risk Premium 5.5%

Cost of Debt 14.0%

Tax Rate 20.0%

WACC 13.4%

Terminal Value Grow th % 0.0%


8

ODAS Enerji

August 12, 2016

RESEARCH

ODAS Enerji Elektrik Perakende (Formerly “Voytron”)

ODAS Enerji Elektrik Perakende is the fully owned subsidiary of

ODAS. As an electricity sales company, it has a strategic

importance in providing ODAS’s customer portfolio for electricity

sales.

We assume ODAS Enerji Elektrik Perakende to serve an average

of 37,000 customers in 2016, which we foreacast to grow by 1% per

annum during our forecast period. We assume a constant EBITDA

margin of 0.8%.

We use a TL DCF with a 10% risk free rate and 5.5% market risk

premium, along with a 50% weight in equity. We assume zero

terminal growth. Accordingly, we value ODAS Enerji Elektrik

Perakende at TL19mn.

Odas Enerji Elektrik Perakende (Voytron) DCF Valuation (TLmn)

2016E 2017E 2018E 2019E 2020E

Sales 306 328 349 371 395

COGS+OPEX 304 325 346 368 392

EBIT 2.4 2.5 2.7 2.9 3.1

EBIT Margin 1% 1% 1% 1% 1%

Tax Rate 20% 20% 20% 20% 20%

NOPLAT 1.9 2.0 2.2 2.3 2.4

Depreciation 0.1 0.1 0.1 0.1 0.1

Gross cash flow 2.0 2.1 2.3 2.4 2.5

Change in working capital 0.0 0.0 0.0 0.0 0.0

Capex 0.0 0.0 0.0 0.0 0.0

Free cash flow from operations 2.0 2.1 2.3 2.4 2.5

FCF/Sales 0.7% 0.6% 0.6% 0.6% 0.6%

EBITDA 2.5 2.6 2.8 3.0 3.2

EBITDA Margin 0.8% 0.8% 0.8% 0.8% 0.8%


(TLmn)






Cost of Debt 14.0%

Tax Rate 20.0%

WACC 13.4%



9

ODAS Enerji

August 12, 2016

RESEARCH

Koprubasi HPP

The Koprubasi HPP has an installed capacity of 8.2MW. It benefits

from the government’s subsidy under the Renewable Energy Law,

and will therefore be able to sell electricity at a price of USD93/MW

until 2020. We assume an electricity sales price of USD73/MW from

2021 and onwards, broadly equivalent to our spot price electricity

assumptions.

We use a TL DCF with a 10% risk free rate and 5.5% market risk


terminal growth. Accordingly, we value Koprubasi HPP at

TL35mn.

Koprubasi DCF Valuation (TLmn)

2016E 2017E 2018E 2019E 2020E 2021E

Sales 9.9 10.4 11.0 11.6 12.2 6.6

COGS+OPEX 3.5 3.7 3.8 4.1 4.3 2.3

EBIT 6.4 6.8 7.1 7.5 7.9 4.3

EBIT Margin 65% 65% 65% 65% 65% 65%

Tax Rate 20% 20% 20% 20% 20% 20%

NOPLAT 5.1 5.4 5.7 6.0 6.3 3.4

Depreciation 0.6 0.6 0.6 0.6 0.6 0.2

Gross cash flow 5.7 6.0 6.3 6.6 6.9 3.6

Change in working capital 0.0 0.0 0.0 0.0 0.0 -0.1

Increase in net other assets 0.0 0.0 0.0 0.0 0.0 0.0

Capex -0.3 -0.3 -0.3 -0.3 -0.3 -0.1

Free cash flow from operations 5.4 5.7 6.0 6.3 6.7 3.4

FCF/Sales 55.1% 55.0% 54.8% 54.7% 54.6% 51.8%

EBITDA 7 7 8 8 9 4

EBITDA Margin 71.1% 70.8% 70.5% 70.2% 69.9% 68.0%


(TLmn)






Cost of Debt 14.0%

Tax Rate 20.0%

WACC 13.4%



10

ODAS Enerji

August 12, 2016

RESEARCH

Can coal power plant

The Can coal power plant is ODAS’s biggest upcoming project. The

plant will have an installed capacity of 330MW. Management guides

that the plant will become operational in 2H17, while we remain on

the conservative side and assume that the plant will commence

operations in 2018. The Can coal power plant will be utilized as a

base load power plant. We assume an average 68% capacity

usage rate going forward, while we assumed a 34% thermal

efficiency for the power plant. We forecast the plant to generate a

TL180mn EBITDA in 2018. We estimate an average 63% EBITDA

margin over our forecast period. We assume that the plant will sell

electricity at ODAS Enerji Elektrik Perakende’s current tariff. We

take the open pit mining phase coal extraction price as USD18/ton,

while taking the gallery phase extraction price as USD25/ton.

Finally, we forecast that the mine will have a life of 15 years, and

once depleted, we assume that Can power plant will not be

profitable since the Company will have to buy coal from outside

parties. Since the Can coal power plant will blend the Can coal

mine’s lignite with coal bought from outside parties, we estimate

that the plant will meet 80% of its coal demand from the Can coal

mine, while supplying the remaining 20% from outside parties.

We use a TL DCF with a 10% risk free rate and a 5.5% market risk


terminal growth. Accordingly, we value the Can coal power plant

at TL828mn.

Can Coal PP DCF Valuation (TLmn) gallery depleted

2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E-2032E Terminal

Sales 235.6 297.9 340.0 385.7 405.8 422.0 632.4

COGS+OPEX 76.9 102.1 119.2 137.8 145.7 199.6 632.7

EBIT 158.7 195.8 220.8 247.9 260.1 222.5 -0.3

EBIT Margin 67% 66% 65% 64% 64% 53% 0%

Taxes 20% 20% 20% 20% 20% 20% 20%

NOPLAT 127.0 156.6 176.6 198.3 208.1 178.0 -0.3

Depreciation 21.5 22.3 22.8 23.3 23.8 24.3 0.0

Gross cash flow 148.4 178.9 199.4 221.6 231.9 202.2 -0.3

Change in working capital 0.0 1.9 1.3 1.4 0.6 0.5 0.0

Capex -223 -120 -8.0 -5.0 -5.0 -5.0 -5.0 -5.0 0.0

Free cash flow from operations -223.2 -120.2 140.4 175.7 195.7 218.0 227.5 198.7 -0.3

FCF/Sales 59.6% 59.0% 57.6% 56.5% 56.1% 47.1% 0.0%

EBITDA 180.2 218.0 243.5 271.2 283.9 246.7 -0.3

EBITDA Margin 76.5% 73.2% 71.6% 70.3% 70.0% 58.5% -0.1%


(TLmn)






Cost of Debt 14.0%

Tax Rate 20.0%

WACC 12.5%


open pit mining


11

ODAS Enerji

August 12, 2016

RESEARCH

Can coal mine

The Can coal mine is ODAS’ second biggest upcoming project. We

assume that the mine will be active concurrently with the Can coal

power plant in 2018, with a 1.75mn ton annual production capacity.

The coal produced by the Can coal mine will be used by the Can

coal power plant, but due to its high average caloric value (3,481

Kcal/Kg), it will be sold to outside parties as well. We assume a

USD18/ton coal extraction cost during the open-pit mining phase

(2018-2023) and a USD25/ton cost during the following period

(2023-onwards). We assume a fixed retail coal price of USD60/ton.

We estimate an average c.26% EBITDA margin for the Can coal

mine and use a TL DCF with a 10% risk free rate and a 5.5%

market risk premium along with a 50% weight of equity. We use a

15-year DCF with no terminal value due to the nature of the

business. We assume the mine to have a 15-year lifespan,

corresponding to a coal reserve of 35mn tons, versus the company

guidance, which assumes that the mine could have a lifespan up to

25 years. Accordingly, we value the Can coal mine at TL165mn.

Can Coal Mine DCF Valuation (TLmn)

2016E 2017E 2018E 2019E 2020E 2021E 2022E-2032E

Sales 218 249 273 278 3717

COGS+OPEX -155 -184 -205 -221 -3151

EBIT 63 65 68 57 567

EBIT Margin 29% 26% 25% 21% 15%

Taxes 20% 20% 20% 20% 20%

NOPLAT 50 52 55 46 454

Depreciation 6 6 6 6 65

Gross cash flow 57 59 61 52 518

Change in working capital 0.0 1.6 1.2 0.3 7.7

Capex -51 -14 -7 -9 -8 -8 -112

Free cash flow from operations -50.9 -14.4 50.2 51.6 54.1 44.0 414.4

FCF/Sales 23.1% 20.7% 19.8% 15.8% 11.1%

EBITDA 69.3 71.8 74.8 63.5 632

EBITDA Margin 31.9% 28.8% 27.4% 22.9% 17.0%


(TLmn)






Cost of Debt 14.0%

Tax Rate 20.0%

WACC 0.0%



12

ODAS Enerji

August 12, 2016

RESEARCH

Karaagac gold mine

We forecast that Karaagac will annually produce 30kOZ of gold. We

assume gold prices to remain stable at USD1,200/kOZ over our

foreacast period, while there is a positive risk regarding gold prices.

We assume that the gold mine will start production in 2018 and we

estimate a three-year lifespan for the mine (therefore, we do not

include a terminal value calculation in our valuation of Karaagac).

We forecast a stable 54% EBITDA margin and use a TL DCF with a

10% risk free rate and a 5.5% market risk premium along with a

50% weight of equity. ODAS Enerji will need to spend around

USD20mn to build a mid-sized gold production facility with an

annual capacity of 30-40kOZ. Accordingly, we value the

Karaagac gold mine at TL53mn.

Karaagac DCF Valuation (TLmn)

2016E 2017E 2018E 2019E 2020E

Sales 0 0 117 124 130

COGS+OPEX 0 0 60 64 67

EBIT 0 0 57 60 63

EBIT Margin 48% 48% 48%

Taxes 0 0.0 20% 20% 20%

NOPLAT 0 0 45 48 50

Depreciation 0 0 7 7 7

Gross cash flow 0 0 52 55 58

Change in working capital 0 0 0.0 0.3 0.3

Increase in net other assets 0 0 0 0 0

Capex -33 -29 -1 -1 -1

Finansal Duran Varlık Alımları/Satışları 0 0 0 0 0

Free cash flow from operations -33 -29 51.0 54.0 56.9

FCF/Sales 43.5% 43.7% 43.7%

EBITDA 64 67 71

EBITDA Margin 54% 54% 54%


(TLmn)






Cost of Debt 14.0%

Tax Rate 20.0%

WACC 13.4%



13

ODAS Enerji

August 12, 2016

RESEARCH

Suda mine

The Suda mine already has an operating license and its

environmental impact report (CED) is complete.

The Suda mine’s book value is TL45mn, but due to the

uncertainty in the reserves, we have remained conservative

and have not included the Suda mine in our SOTP valuation.

ODAS Enerji has not yet disclosed the amount of reserves in the

Suda Mine. Suda has antimony, silver and copper reserves along

with gold. The antimony mining operations have already started and

could potentially contribute to the EBITDA figure in the Company’s

financials this year.

The Suda mine’s close proximity (3 km distance) to the Karaagac

gold mine will enable ODAS Enerji to use a single mining facility for

two mining sites, thus reducing the cost associated with mining

operations and potentially reducing the required CAPEX (since the

Company will most likely upgrade the Suda facility instead of

building a new production facility for Karaagac). A single facility for

two mining sites will allow the investment turnover to be much

faster for ODAS Enerji.


14

ODAS Enerji

August 12, 2016

RESEARCH

CONSOLIDATED PROJECTIONS

EBITDA Breakdown

We forecast the EBITDA figure to surge with the activation of Can coal

power plant and the Can coal mine in 2018 as well as the commencement

of gold mining operations at the Karaagac mine site. Note that there is an

upside risk for 2017 in the case of a completion without delay, in line with

the company guidance.

Net Debt/EBITDA Accordingly, we expect the Net Debt/EBITDA ratio to retreat back to 1.4x

from its current level of 8.1x due to the surge in the consolidated EBITDA

figure. ODAS Enerji has a highly leveraged status as of now and we

expect it to remain as such until the debt is paid off by the activation of

cash generating assets. An upward movement in EURTRY poses a risk to

the net debt figure.

51 46 31 19

7 78

89

180 218 244

69

72 75

64

6771

3 3

3

3 3

0

50

100

150

200

250

300

350

400

450

2016E 2017E 2018E 2019E 2020E

Voytron

Karaagac Mine

Can Coal Mine

Can Coal PP

Koprubasi HPP

Urfa NGPP

Source: Garanti Securities Estimates


312

587

720

481

8.1x9.1x

11.6x

1.4x0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

0

100

200

300

400

500

600

2015 2016E 2017E 2018E

Net Debt

Net Debt/EBITDA



15

ODAS Enerji

August 12, 2016

RESEARCH

ODAS Enerji is a family-owned company (Ozal and Altay families) which

has a preferred shares structure, Type A and Type B.

Type A shareholders (Mr.Bahattin Ozal and Mr.Burak Altay) have 15

voting rights for a single share.

Source: The Company

Type A Type B

- 7.5

1.5 5.8

1.5 5.8

- 7.5

- 18.0

TOTAL 3.0 44.6

BB Enerji

Free Float

Shareholder Structure

Korkut Ozal

Bahattin Ozal

Burak Altay

THE COMPANY

Company Overview

Established in 2010, ODAS Enerji is a company that owns several entities

engaged in the energy and mining sectors. While initially focused on

electricity generation, ODAS Enerji is now on the verge of becoming a

more diversified and niche energy player with a lessening emphasis on

natural-gas based electricity production, leaning on a cheaper alternative,

coal, as an energy source as well as targeting a new segment, precious

metals mining.

Shareholder Structure

Burak Altay;

15.33%

A.Bahattin Ozal;

15.33%

Korkut Ozal;

15.55%BB Enerji Yatirim; 15.55%

Free Float; 38.24%

1) CAN COAL POWER PLANT 1) COAL MINING

Capacity: 330 MW Can Coal Mining Supply Hub

Commercial Operational Date: 2H17E Commercial Operational Date: 2017E

2) URFA NATURAL GAS POWER PLANT 2) GOLD MINING

Capacity: 140 MW Karaagac and Suda

Operational Since 2012 Commercial Operational Date: 2018E

3) SOLAR POWER POINT 3) ANTIMONY MINING

Capacity: 0.25 MW Suda Mine

Operational Since 2014 Operational Since 2016

4) KOPRUBASI HYDROELECTRIC POWER PLANT

Capacity: 8.2 MW

Operational Since 2015

5) ODAS ELECTRICITY SALES

6) ODAS NATURAL GAS TRADING

Planned to expand operations by 2016

ENERGY MINING & PRECIOUS METALS

Source: The Company


16

ODAS Enerji

August 12, 2016

RESEARCH

Can coal mine

ODAS acquired a 92% stake in Can coal, located in Canakkale, for

TL6.5mn in September 2013. The coal mine has more than 50mn tons of

approved coal reserves by the Ministry of Energy. Previously, an

accredited company, Fichtner Gmbh, had conducted exploration and

drilling in the field and had identified 24mn tons of coal based on JORC

standards, with limited drilling studies. The coal extracted from the mine

has a very high average caloric value (3,481 Kcal/Kg), allowing it to be

sold separately to be utilized by other industrial plants, in addition to coal

fired power plants. ODAS takes into account the latter estimate, while the

Ministry’s coal reserve estimate presents a further upside value.

The Company also aims to consolidate nearby coal claims and around

8mn tons of additional coal have been secured to be mixed with the

current high-calorie reserve for revenue optimization in coal and electricity

sales.

Comparison of Calorific Value of Local Power Plants

Source: The Company

Can coal power plant

The Can coal power plant is expected to be complete in 2H17. To remain

conservative, we forecast the Can power plant to commence its

operations in 1Q18. The Can power plant will be utilized as a base load

power plant – in other words, it will meet the ongoing 24-hour electricity

demand as opposed to Sanliurfa, which is a balancing plant that shuts

itself on and off, depending on changing electricity demand levels. ODAS

aims to build a portfolio of clients to sell the electricity it is set to produce

with the activation of the Can power plant. Management is already

building up this client portfolio with ODAS Enerji Perakende (formerly

known as “Voytron”).

The subsidiary is currently selling electricity at around the USD55 levels to

institutional clients, small-medium enterprises and large villas.

Management aims to sell the electricity to be produced by the Can power

plant through Voytron’s existing client base.

As of today, Turkish utility companies meet the country’s base load

electricity demand mostly through natural gas power plants. ODAS,

however, will respond to the electricity demand with Can, a coal based

power plant. Since coal is the cheapest resource available for electricity

production, the Can coal power plant will allow ODAS to have a more

Location Fuel Type TPP Projects Kcal/kg

Canakkale Lignite Can 3,480

Canakkale Lignite Can 2,900

Ankara Lignite Cayirhan 2,700

Bolu Lignite Bolu 2,450

Manisa Lignite Soma 2,430

Bursa Lignite Orhaneli 2,240

Mugla Lignite Yatagan 2,100

Mugla Lignite Kemerkoy 1,750

Kutahya Lignite Seyitomer 1,750

Mugla Lignite Yenikoy 1,750

ODAS

EUAS

PARK G

AKSA

EUAS

EUAS

EUAS

EUAS

EUAS

EUAS

210

630

630

600

420

340

320

600

270

1,034

Installed Capacity (MW)Company

OPERATIONS


17

ODAS Enerji

August 12, 2016

RESEARCH

favorable mix compared to other Turkish energy sector players. Can is

also set to become the most competitive base-load power plant in Turkey

due to the high calorific value (Average: 3,481 Kcal) of the coal acquired

from the Can coal mine, among other local coal fired power plants.

The Can coal power plant will operate with a capacity of 330MW. We

forecast a TL180mn EBITDA generation in 2018. ODAS has so far spent

EUR72mn in CAPEX for Can. Total CAPEX is projected to reach

EUR145mn, which is actually low for a power plant of this magnitude: A

built-from-scratch plant of this size would require a CAPEX of EUR400-

450mn, according to management. ODAS has instead chosen to

purchase an Austrian power plant which had a net operational history of

10 years, was left in good condition and has been relocating equipment

from the Austrian plant to Canakkale. ODAS has secured EUR116mn in

project financing for Can. In addition, EUR27mn of the CAPEX came from

the cash flow generated from ODAS’ IPO in May 2013, while EUR29mn is

the total equity obligation of the credit loan agreement.

The investment incentive certificate has been received and all legal

permissions have been acquired. ODAS Enerji has taken extra care in

addressing the Can coal power plant investment’s environmental issues.

ODAS has purchased the FGD (Flue Gas Desulfurization) for oscillation

from General Electric (ALSTOM Power SpA), although there will be no

legal requirements for implementing FGD systems in existing coal fired

power plants in Turkey until 2019. General Electric is one of the few

companies in the world with great expertise in FGD systems. ODAS

Enerji has signed agreements with Steinmuller of Germany for all other

emission related investments.

Sanliurfa NGPP

The Sanliurfa NGPP located in Sanliurfa, South Eastern Turkey, has been

operating since the beginning of 2014 with an installed capacity of

140MW. The Sanliurfa NGPP is a balancing power plant, which operates

only when demand exceeds regional supply. Unlike the Sanliurfa NGPP,

coal PP’s, large NGPP’s and some HPP’s are unable to respond to

changing demand levels.

Demand is seasonal in the region, with peak levels seen during the

summer time (between July-September) due to irrigation and agricultural

usage. ODAS makes a higher profit in the Sanliurfa region, above the spot

electricity price, by selling electricity directly to TEIAS (Turkish Electricity

Transmission Company). Note that the Sanliurfa region has the highest

electricity demand level in Turkey due to the fact that transmission lines to

the region are insufficient and regional supply does not meet regional

demand. During the summer, electricity usage per person in Sanliurfa

exceeds that of Istanbul’s. 2015 was a year of underperformance for the

Sanliurfa NGPP due to a cool summer season and no government

promotions for cotton, which influenced farmers to plant corn instead

(cotton needs more water, which requires more electricity). This year, the

region has experienced a drought and farmers are planting cotton once

again.


18

ODAS Enerji

August 12, 2016

RESEARCH

The Sanliurfa NGPP contributed TL30mn to the total TL38mn EBITDA

generated by ODAS in 2015. The Sanliurfa NGPP’s average sales price

margin relative to the spot electricity market levels are around 100-200%.

As electricity prices fall, other players halt production, bringing out

Sanliurfa NGPP’s competitive advantage. In other words, the Sanliurfa

NGPP benefits from higher electricity sales prices just like any other

producer, but benefits even more from lower prices. ODAS has sold

SanliurfaNGPP’s electricity at an average price of TL270 in 2015, while

1Q16 sales prices were around TL315, up by c.13% qoq. Sanliurfa’s

NGPP’s electricity production has increased by 14% qoq in 1Q16. A higer

EBITDA contribution from the Sanliurfa NGPP is expected this year, as

compared to the TL30mn EBITDA generated in 2015, even if the “summer

advantage” factor does not come into play. A hot summer and high

drought levels would present a further upside.

Urfa NGPP Sales Premium vs. Spot Electricity Price

On a separate note, ODAS also has a 0.25MW solar power plant in

Sanliurfa.

Koprubasi HPP

The Koprubasi HPP is located in the Black Sea region of Trabzon.The

HPP became operational in October 2015, with an installed capacity of

8.2MW and a 49-year license period (47 years left as of October 2015).

ODAS spent USD13mn in CAPEX for the Koprubasi HPP investment.

While the HPP sells electricity at the pre-determined tariff based on the

Renewable Energy Law, since local equipment was used in the

construction of the power plant, ODAS benefits from an additional mark

up of USD20/MWh on the subsidized tariff. Consequently, the power plant

will sell electricity at USD93/MWh. Management expects an annual

EBITDA contribution of USD2.5mn from the Koprubasi HPP in 2016.

Koprubasi HPP generated a USD500k EBITDA in 2015.

350

274

237

282

405

313

271 272 278 278

315

155 162 158 156173 164

146129 135 145

121

0

50

100

150

200

250

300

350

400

450

3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16

Average Odas Price(TL/MWh)

Average Spot Price(TL/MWh)

Source: The Company


19

ODAS Enerji

August 12, 2016

RESEARCH

Karaagac mine

Located 15km east of Gediz, Karaagac has two licences, and MTA has

conducted drillings in Karaagac prior to Stratex. ODAS Enerji began

exploration in Karaagac in 2015. The gold in Karaagac is not visible to the

eye, so the Company took rock samples within 50m intervals. After 46

drillings, the inferred gold reserve in Karaagac has been determined to be

157,000koz (with an average 0.78gr Au per ton). The Company spent about TL2mn for drilling in Karaagac.

ODAS Enerji is currently waiting for the government’s approval to continue

its drilling operations in the western part of Karaagac in order to convert

inferred reserves into measured reserves. Note that the most lucrative

part of Karaagac harboring the largest gold reserves within the limestone,

has not been measured yet due to the pending approvals. While

management could expect some positive developments regarding the

drilling approvals in the autumn of 2016, the exact timing is still uncertain.

Even in the best case, ODAS Enerji does not estimate an EBITDA

contribution from gold production until 2018.

Suda mine

The Suda mine has four fields, Cebrail being the largest (549 hectares).

ODAS Enerji is currently focusing on exploration drilling in the Cebrail

field. Note that the Karaagac mine is located in close proximity to Suda

mine’s Cebrail field. Drillings are ongoing on the Cebrail fault line. The

field could contain oxidized gold as found within Pyrite, which has a very

low cost of extraction through cyanide usage. ODAS Enerji believes that

the Cebrail field fault line contains gold and the explorations are focusing

on locating where the gold is most concentrated. Additional drilling is

required and is pending approval. The gold mining in Suda will be an open

pit process with lower production costs. According to management, the

production cost will not exceed USD600/oz.

On the other hand, antimony mining has already started in the Suda mine

and we might see an EBITDA contribution from 3Q16 onwards. Antimony

is used in semiconductors, the tire industry vulcanization processes,

ammunition production and as a flame retardant in the chemical industry.


20

ODAS Enerji

August 12, 2016

RESEARCH

Price Performance

Source: Rasyonet

Quarterly Financials

Source: Rasyonet

Odas Elektrik Summary Financials

(mn TL) 1Q15 2Q15 3Q15 4Q15 1Q16 1Q16/1Q15 1Q16/4Q15

Net Sales 98 119 136 132 128 30% -3%

Gross Profit 10 11 10 12 16 59% 28%

Operating Profit 7 9 7 9 11 60% 32%

EBITDA 12 7 8 11 13 11% 19%

Net Other Income/Expense -1 0 -1 6 0 n.m. n.m.

Financial Inc./ Exp. (net) -6 -8 -40 17 2 n.m. -86%

Tax 0 0 4 -4 -2 n.m. n.m.

Net Income 0 1 -29 27 11 2247% -61%

Net Cash -237 -218 -284 -305 -340

Working Capital 0 12 12 -23 7

Shareholders Equity 98 142 113 169 188

Ratios

Gross Margin 10.0% 9.2% 7.1% 9.3% 12.3% 2.3 pp 3 pp

Operating Margin 7.2% 7.5% 5.2% 6.5% 8.9% 1.7 pp 2.4 pp

EBITDA Margin 12.3% 5.5% 6.2% 8.5% 10.5% -1.8 pp 2 pp

Net Profit Margin 0.5% 0.5% n.m. 20.8% 8.4% 7.9 pp -12.4 pp

Change

1.00

4.00

7.00

10.00

13.00

01.1

4

03.1

4

05.1

4

07.1

4

09.1

4

11.1

4

01.1

5

03.1

5

05.1

5

07.1

5

09.1

5

11.1

5

01.1

6

03.1

6

05.1

6ODAS BIST100


RESEARCH

Disclaimer

This document and the information, opinions, estimates and recommendations expressed herein, have been prepared

by Garanti Securities Research Department, to provide its customers with general information regarding the date of issue

of the report and are subject to changes without prior notice. All opinions and estimates included in this report constitute

our judgment as of this date and are subject to change without notice.

This document and its contents do not constitute an offer, invitation or solicitation to purchase or subscribe to any securi-

ties or other instruments, or to undertake or divest investments. Neither shall this document nor its contents form the ba-

sis of any contract, commitment or decision of any kind.

Investor who have access to this document should be aware that the securities, instruments or investments to which it

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sions considering the said circumstances and obtaining such specialized advice as may be necessary. The information

in this report has been obtained by Garanti Securities Research Department from sources believed to be reliable. How-

ever, Garanti Securities cannot guarantee the accuracy, adequacy, or completeness of such information, and cannot be

responsible for the results of investment decisions made on account of this report.

The market prices of securities or instruments or the results of investments could fluctuate against the interests of inves-

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Garanti Securities

Etiler Mah. Tepecik Yolu

Demirkent Sokak No:1

34337 Besiktas, Istanbul / Turkey

Phone: +90 (212) 384-1155

Fax: +90 (212) 352-4240

Definition of Stock Ratings

OUTPERFORM (OP) The stock's return is expected to exceed the return of the BIST-100 over the next 12 months.

MARKET PERFORM (MP) The stock's return is expected to be in line with the BIST-100 over the next 12 months.

UNDERPERFORM (UP) The stock's return is expected to fall below the return of the BIST-100 over the next 12 months.

Documents

ODAS Enerji Outperform August 12, 2016 ROE n.m. Analyst ... · analyst meeting on June 1, 2016. Nearly half of the construction has been completed so far and the progress appears