We had the pleasure of speaking with Mesut Ellialtioglu of Talas Turkey Value Fund about investment opportunities in Turkey, brought on by the recent depreciation of the Turkish lira.

In Mesut’s view, Turkey offers some of the best investment opportunities in more than a decade as valuations have dropped further from levels that were already attractive. Mesut cautions, however, that investors need to be discerning in their choice of investments, as some companies may have weak balance sheets, with dollar-denominated debt. Avoiding such companies while investing in strong businesses with large sources of hard currency revenue should help investors realize attractive long-term returns, according to Mesut.

Mesut highlighted two companies as deserving of closer study: Sisecam (Turkey: SISE) and Arçelik (Turkey: ARCLK). Mesut had presented Sisecam at Best Ideas 2021 and Arcelik at Best Ideas 2019.

Sisecam is a leading integrated glass manufacturer in Turkey and the EMEA region. It is also one of the top ten global glass conglomerates, with a market capitalization of $3 billion. The company completed a merger with its listed subsidiaries in the second half of 2020 following a delisting of the subsidiaries, including SODA Sanayii, Trakya Cam, and Anadolu Cam. Sisecam operating as a single entity should result in cost savings, leading to improvement in operating margins in 2021 and beyond. Mesut expects Sisecam to deliver revenue growth of 35% in 2021, helped by a cyclical recovery in flat glass and glassware volumes, pricing increases across its markets, and a favorable translation effect of a higher EUR/TRY exchange rate.

Arcelik, Turkey’s leading household appliance manufacturer, produces and markets consumer durable goods, consumer electronics, small home appliances and kitchen accessories as well as provides after-sales services. With factories in seven countries (Turkey, Romania, Russia, China, South Africa, Thailand, and Pakistan), marketing and sales organizations in 33 countries, Arcelik operates globally. It is by far the leader in Turkey, with roughly 50% market share. It is also the third-largest home appliance company in EMEA, the UK, France, and Poland. Arcelik is the number-one appliances company in Romania, South Africa, and Pakistan. Arcelik focuses on international growth via market share gains and organic growth in the underpenetrated markets of Sub-Saharan Africa, India, and South East Asia.

During the conversation, John asked about Koç Holding (Turkey: KCHOL, US: KHOLY), an investment company that owns 57% of Arcelik. Mesut had presented Koc Holding at Best Ideas 2018. In his current view, Koc Holding trades at a discount to NAV and is worthy of closer examination. However, Mesut believes that Koc-controlled Arcelik offers an even clearer path to above-average investment returns in light of Arcelik’s global growth opportunities.

Finally, John asked about ways in which for Western investors can gain exposure to Turkey. In order to invest locally, investors need to register to become eligible for purchases of locally listed shares. Some of the larger companies, such as Turkcell (Turkey: TCELL, US: TKC), Akbank (Turkey: AKBNK, US: AKBTY), and Koc Holding, are available for trading in the U.S. via sponsored or unsponsored ADRs, although trading volumes are generally lower than in Turkey.

Mesut’s Talas Turkey Value Fund, which he co-founded with Matthew Peterson, invests locally and focuses on the best opportunities in Turkey. Mesut also organizes an annual tour of selected companies in the country, with the next round of visits scheduled for early 2022. We encourage interested members to reach out to Mesut directly (contact information below).

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This conversation is available as an episode of Discover Great Ideas, a member podcast of MOI Global. (Learn how to access member podcasts.)

About the instructor:

Mesut Ellialtioglu, the Fund’s Turkey Investment Officer, has 23 years of Turkey focused equity research and fund management experience and focuses on value investing opportunities in the Turkish equity market. Prior to forming Talas Capital with Mr. Matthew Peterson, Mr. Ellialtioglu worked with Bankers Trust Company as an associate, Korfez Securities (Garanti Bank) as Co-Head of Research, UB Ulusal Securities (formerly SAMBA Saudi American Bank) as Managing Director for research and asset management, Kent Securities as Head of Asset Management, and ABN AMRO Asset Management Turkey as Chief Investment Officer. Mr. Ellialtioglu graduated with BS in Economics degree from the Wharton School of Business of the University of Pennsylvania in 1993.

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