THE COMPANY: With 34.5m subscribers in Turkey at the end of the first quarter of 2012, Turkcell is the leading mobile operator in Turkey with around 53% market share. The company covers 87% of the Turkish population through its 3G and 99% through its 2G technology supported network. According to Ericsson’s research, Turkcell ranked 1st among 53 countries for 3G data download speed. It has become one of the first among the global operators to have implemented HSDPA+ and achieved a 42.2 Mbps speed using the HSPA multi carrier solution. The company also has operations in 8 other countries (primarily in Kazakhstan, Ukraine and Azerbaijan), reaching 65.3m subscribers in total. Turkcell is expected to generate TL9.9-10.1bn (€3.95bn) in revenues with TL3-3.2bn (€1.28bn-1.36bn) earnings before interest, taxes, depreciation and amortisation (EBITDA) margin in 2012. In line with the company’s growth strategy to provide superlative services, Turkcell continues to invest in a fibre-optic backbone network through its fixed broadband subsidiary, Superonline. Thus, the company targets to differentiate itself from competition via fibre-optic infrastructure. Superonline has continued its growth in the ¨fibre-to-the-home¨ (FTTH) league and according to the International FTTH Council’s latest report, Turkey is ranked one notch above 2011, coming in at 7th in fibre internet penetration among G20 countries.

Turkey’s mobile penetration at 88.6% levels as of the end of 2011 is even lower than that of the lowest penetration in EU-15 countries. While EU average stands at 126% levels, Greece has the highest penetration with 161%. We expect mobile penetration in Turkey in 2012 to be flat at 88%, growing in line with population, reaching 66m SIMs, primarily led by tablet growth. A key performance indicator is average revenue per user (ARPU) in telecoms. Turkey’s average ARPU is $12.2 (Turkcell’s blended ARPU is $12.70), which is nearly one third of European countries. Since ARPU can be related to GDP per capita, Turkey’s ARPU could grow with increasing GDP per capita. The total share of post-paid subscribers in Turkey continues to grow, reaching 31%, yet still compares low to the European average of 47%.

The share of post-paid subscribers in Turkcell is 35% and continues to grow due to the company’s on-going focus on the post-paid segment.

Mobile taxes in Turkey are the highest in the world at around 60%, including the 15% Treasury share ( including universal service fund) equal to 15% of mobile operators’ gross revenue, 25% special communication tax on voice and 18% value-added tax. Should the taxes be reduced with improving economic conditions, this could lead to increasing revenues.

3G now accounts for 48% of total subscribers in Turkey and 50% for Turkcell, despite the fact that services only became available in the country in July 2009.

Mobile internet accounts for 9% for mobile revenues in Turkey compared to 30% in Europe, signalling growth potential that could be driven by increasing smartphone (SP) penetration, which is likely given more affordable pricing in that area.

SMARTPHONES: This has been the year of SPs (tablets not included) outgrowing PCs and laptops globally. By 2013 the number of tablets and SPs is expected to be double that of PCs and laptops. By 2015, according to independent research, global data traffic is expected to grow to sixfold what it is today, primarily driven by video – which is projected to grow tenfold and will constitute 66% of data traffic – and also machine-to-machine as a newcomer, with 5%. There could be further opportunities related to cloud computing, mobile payment and services, which could be hugely enhanced, creating further amounts of revenue.

Turkcell has been on the Istanbul Stock Exchange and the New York Stock Exchange (NYSE) since July 2000, and is the only Turkish company listed on the NYSE.

It is trading at a 17% discount to 2012 peer median enterprise value/EBITDA multiple and 6% discount to 2012 peer median P/E multiple. We have used a blended approach (50% DCF, 50% peer comparison) and assign a value to Turkcell at TL10.40 (€4.42) per share.