Aygaz: Energy

The Company

Aygaz, founded in 1961 and listed on the Istanbul Stock Exchange (now Borsa Istanbul) in 1990, is the market leader in liquefied petroleum gas (LPG) distribution in Turkey, with a sales volume of 1.7m tonnes and $3.2bn in revenues in 2012. Serving some 5m households and possessing a fleet of 250,000 vehicles, Aygaz is the fifth-largest LPG distribution company in Europe. Aygaz has a market share of 43% in the LPG canister market and a 23% share in auto-LPG sales, corresponding to an overall market share of 28%.

The company has a fixed storage capacity of 170,000 cu metres across 26 facilities in Turkey, and a moving storage capacity of 56,000 cu metres. Aygaz also has six LPG ships, which allows the company to sell and purchase in bulk. The firm’s Gebze facility exports canisters and other gas devices to 22 countries. In addition, Aygaz uses 299 land tankers and 206 canister transportation vehicles to service over 20,000 bulk gas clients, and has 2459 dealers delivering LPG canisters to 100,000 homes each day from over 5000 service vehicles.

The company also serves more than 1m vehicles through its Aygaz Euro LPG+ product, which is sold at 1341 auto-LPG stations. During 2012, Aygaz’s core LPG business traded at an adjusted enterprise value/earnings before interest, taxes, depreciation and amortisation (EV/EBITDA) of 7.0x, compared to its peer group average of 7.8x.

Development Strategy

Aygaz has diversified its portfolio in energy-related businesses beyond its core LPG business, which accounts for 51% of its current net asset value (NAV). The company also has an LNG and natural gas business (Aygaz Doğalgaz, 2% of current NAV), a 20% stake in the refining special purpose vehicle (SPV) EYAŞ (30% of current NAV), a 2% position in the finance SPV KFS (10% of current NAV), and 24.8% ownership in the power generation company AES Entek (5% of current NAV). Following a series of stake sales, Aygaz’s ownership in AES Entek (previously Entek) declined from 86.1% to 24.8%. AES Entek’s current installed capacity stands at 303 MW (Aygaz’s effective stake: 75 MW) and is set to reach 1236 MW (Aygaz’s effective stake: 229 MW) by 2015. AES Entek’s options for pursuing additional expansion include: acquisitions through the privatisation of certain assets held by the state’s electricity generation arm, EUAŞ, a process that is likely to accelerate in 2013; establishing greenfield operations; or acquiring assets from competing firms, which could be triggered by consolidation in the sector. The company books its investments in AES Entek through the equity pick-up method; thus, the forward-looking proceeds at the entity will be reflected as income from subsidiaries, with no contribution at the top line or EBITDA level.

Aygaz conducts its natural gas, LNG and compressed natural gas (CNG) business through Aygaz Doğalgaz Toptan Sat›ş (the wholesale company) and Aygaz Doğalgaz Iletim (the distribution company). The entities were established in April 2004 with equal shares distribution following the joint venture agreement between Koç Group and Norwegian Statoil Hydro, and Aygaz has gradually increased its stake to 99%. Aygaz Doğalgaz started its operations in the natural gas market in 2004, handling LNG and CNG sales and distribution as well as natural gas sales. In January 2010, the company also started to supply natural gas to eligible customers. As of 2011, Aygaz Doğalgaz had around 250 industrial customers and a market share of approximately 20% in the LNG segment, with a sales volume of 220m cu metres.

Thanks to its stable business model, Aygaz is likely to sustain a reasonable dividend yield of 4.3% between 2013 and 2015, with possible investments not likely to have a negative impact. In addition, the firm’s dividends may increase in 2016, as cash flow from EYAŞ is likely to rise once the debt obligations associated with the acquisition of the oil refinery Tüpraş are fully paid off, which is expected in 2015.