Turkcell Remains a Hold for Now

We expect an in-line 4Q07 after Turkcell Iletisim Hizmetleri A.S. (TKC - Analyst Report), reported its third quarter results that were better than our expectations, partly due to the strength of most currencies against the US dollar, as the Turkish lira was up 19.5% year-over-year against the US dollar. Despite the currency effects, the company continued to improve its margins and has worked to build up its infrastructure.

We are maintaining our previously raised revenue and earnings estimates for the company, although we expect growth to slow slightly in 2008 as the Turkish market closes in on its saturation point. The recent ratings upgrade from Standard & Poor is a big positive for Turkcell. We have fixed our price target at $25.75 for the next six months or at 13.7x our new 2008 EPADS estimate.

While the company's growth prospects are solid and we are maintaining our raised 2007 and 2008 revenue and earnings estimates, the company's expansion in other regions has led to an increased debt level. However, the economy in Turkey has become more unstable as the country is in skirmishes with the Iraqi border, upsetting the US and Europe.

We were encouraged by the strong growth in the revenues and earnings during the third quarter as well as the growth at its affiliates, although some of this growth has to do with the weakness in the US dollar against all major currencies since the company reports in US dollar terms but its income and expenses are in Turkish lira (which increased 19.5% year-over-year against the US dollar, and increased 7.6% sequentially) and other European currencies. This has led us to increase revenue and earnings outlook for 2007 and 2008, although we expect to some additional weakness from the US dollar.

Read the full analyst report on TKC