We assign a High Risk rating which we think is appropriate considering Arcelik's elevated share price volatility and high leverage. Downside risks to our target price and investment thesis include: (1) Macro volatility – a slower rate cut path could lead to a weaker recovery in discretionary demand. (2) Deterioration in consumer sentiment could lead to a drop in volumes resulting in lower capacity utilization. (3) Challenging M&A integration and weaker-than-expected European margin recovery. (4) Higher competition and pricing pressure primarily from Chinese producers. (5) Raw cost materials price increases leading to GM pressure. Upside risks to our target price and investment thesis include: (1) Stronger-than-expected progress on EU assets turnaround. (2) Stronger pricing that can offset cost pressure, leading to higher margins. (3) Cancellation of acquired treasury shares (~10%).
|