Published June 18, 2021

As promised, I wanted to cover specific stocks in Turkey following my background post on the country last monthSentiment remains terrible, and the lira is making all-time lows vs. the dollar. 

Long-term chart of USDTRY rate

This has all the makings of the bargain bin. Turkey is not slipping into the Aegean nor the Black Sea, but the headlines make it difficult for institutional investors to bear. To protect limited capital, local investors may be forced to diversify further into USD or other assets.

My original plan was to cover two names here, but I am still wrapping my head around a couple of outstanding items in one name. It is an industrial company with many moving pieces, and I am unsure how some drivers will balance out. Its short-term technicals are a bit weak, so I believe I have some time.

Today, I will write about Enka Insaat ve Sanayi AS (IST: ENKAI, OTC: EKIVF) or Enka for short. This company came off my screener in the last post but was not the cheapest name on multiples. Other elements moved it to the top of the queue.

Enka Insaat ve Sanayi AS

Enka is one of the leading construction companies in Turkey. Like many contractors, it has diversified into owning the types of assets it builds for its customers. Therefore, in addition to its engineering, construction, and procurement (EPC) division, it has real estate, power generation, and equipment sales arms.

What has made Enka attractive to me is that most of its earnings come from outside of Turkey. If you add up all of its assets, its shares are also trading at a substantial discount to value. In addition, two controlling families own nearly the entire company and have recently increased their ownership through buybacks or outright acquisition.

I view this as a multi-year investment, assuming it is not delisted (more on that in the risks section).

Investment Case

I will make the investment case in four critical points:

  1. Sum of Parts
  2. An International Company
  3. Quality of Businesses
  4. Robust Balance Sheet and Cash Flow Generation

Sum of Parts

The sum of Enka’s businesses is worth more than its current market capitalization. I will look at their EPC, power business, real estate, and investment portfolio vs. the market value for this exercise. Effectively, you get this portfolio at a discount.  

At Enka’s current share price of TRY 8.72 and USDTRY 8.7, Enka has an enterprise value (equity + debt – cash) of USD 4.1 bn with net debt of USD – 1.5 bn and market capitalization of 5.6 bn. Therefore, given the company’s significant net cash position and little debt, I am using enterprise value instead of market capitalization as the basis for market value. 

The company has an investment portfolio of mostly foreign currency bonds of USD 3 bn and a Russian real estate portfolio valued at USD 1.9 bn at the end of 2020. So, for an enterprise value of USD 4.1 bn, you get an investment portfolio and real estate worth USD 4.9 bn.  

Nearly a 20% discount on those businesses is not bad!

But wait! There's more!

I will ignore the machine retail business (it’s small). The company still owns three natural gas power plants in Turkey with a combined capacity of 3,830 MW and the EPC business.  

The EPC business has generated EBIT on the order of 100-160 million USD over the last few years, focusing on real estate and infrastructure in Russia, the Middle East, the CIS, and North Africa. Assuming that the business trades at a conservative 5x EBIT, that business is worth at least 500-800 million USD. There are other reasons why I think it should be worth more, but we don’t have time in this format.

The power business has a book equity value of 700 million USD as of March 30, 2021, and before the expiration of its last contracts in 2019, generated around 250 million USD in EBIT. Again, using a conservative 5x multiplier, that segment could be worth 1-1.25 bn USD, too.  Over half the capacity just resumed operations in the current quarter after being inactive for nearly two years.    

So, you end up with a business valued by the market at 4.1 bn with potential assets of 6.4 (4.9 base + 0.5 for EPC + 1 for power) – 6.9 (4.9 base +0.8 for EPC + 1.25 for power)  bn USD at conservative multiples implying a ~50+% return before any multiple expansion. This provides a pretty good margin of safety.

An International Company

Enka is a Turkish company listed on the Istanbul Stock Exchange, but its business is largely international.  Its accounts are prepared in USD, and most of its revenues are in foreign currency and sourced outside of Turkey.  

In 2020, 18% of its revenue came from Russian real estate, where the leases are not in Lira, nor is the business risk Turkish. The revenue balance came from EPC. If we look at the EPC order book (outstanding contracts in execution, also known as backlog) from the end of 2019 below, we see that only 8% or USD 217 million came from Turkey:

Backlog as of December 31, 2019
Source: Enka 4Q19 Presentation

The current order book shows an even smaller amount of Turkish work, yet a larger overall book.

Backlog as of March 31, 2021
Source: Enka 1Q21 Presentation

The resumption of the power business will increase the profits coming from Turkey, but it will still likely be less than half of the total annual EBIT or EBITDA.

There are risks in Enka’s business model, but the operational downside from Turkish activity is not top of the list.  

Quality of Businesses

How do you feel about contractors and construction companies? They don’t usually have the most outstanding reputation. So, when you are investing in one, you want to make sure they are held in high regard.  

I am not a channel checking expert, but it is apparent that they are good at what they do in the EPC business when reviewing the company. They also own quality assets in Russia.  

On the EPC front, the essential items I will highlight are that they are a consultant to a US company, Caddell, who has been contracted for building US embassies in far-flung places, including Turkey and Africa. I don’t believe you get to advise contractors to the State Department without some form of clearance.  Two, they are preferred building partners for Siemens and GE for natural gas power plants in the markets Enka operates in, like Russia, Iraq, and Libya.  Three, they are a supplier of precision parts for Pemex’s new greenfield refinery in Mexico.

On the real estate side, their retail, office, and hotel portfolio has performed admirably during COVID, with occupancy and lease rates holding remarkably steady in USD terms. Of course, their strong concentration in Class A spaces in the center of Moscow helps.       

Robust Balance Sheet and Cash Flow Generation

As mentioned initially, the company has a net cash position of 1.5 bn USD or 25~% of market capitalization. This does not factor in the investment book of 3 bn USD. So a lot would have to go wrong in Turkey for the business to turn south.  

Despite this conservative balance sheet, the company trades at a comfortable market cap to FCF ratio of around 10x, with upside optionality if the power business picks up or countries in its core EPC markets continue to invest in infrastructure.  


The key risks in this thesis are the level of float, the future of the power business, and reputational risks from a new project.

Level of Float

Per the company’s March 2021 presentation, the float of Enka is around 9%, with two families effectively controlling the balance.  

On the bad end, investors need to be aware of the “squeeze out” rules. These rules permit controlling shareholders to buy out minorities subject to reaching specific thresholds. From this piece here, it appears that the threshold is 98%, meaning that the main shareholders, assuming they are acting in concert, would need an additional 7% to trigger.  

If they were to do so, the price they pay remaining minorities would be the arithmetic average of the volume-weighted average daily price over the prior 30-days. So, if you do work on the name, be aware that the main shareholders can strip the upside, but the rules are pretty straightforward. Ultimately, it seems nuts for the families not to try and take it private at these prices, but who knows.

The Power Business is Never Profitable

The three power plants are approaching 20 years old, and while two of the plants have recently restarted due to rule changes, there is no guarantee of the profitability of this group. Case in point, Turkey just changed the feed-in tariff rules for renewables last month, making additional investments in that space potentially much less attractive.  

This is probably good for Enka’s plants now, but it illustrates how the rules can change. The company may also need to make upgrades to remain competitive. I have more work to do here, but I think it’s unlikely these plants are worth anything less than book value despite the risks.

Reputational Risk in Georgia

Enka is constructing two hydropower dams in the country of Georgia, and there are ongoing protests regarding the contract terms and environmental suitability of the project. Opposition within Georgia has grown, and it looks like they may amend the project terms. This could have financial as well as reputational consequences. Furthermore, it appears Enka acquired its interest in the project from others, as this article suggests.

From a financial perspective, Enka states in its 2020 annual report that the project was only 6.5% completed as of the end of 2020. Given the 800 million USD project cost, the financial damage of stopping at this point would be limited.


I don’t have much additional insight here other than to say that the chart is pretty up and to the right. When you overlay it with lira performance, it looks strong in USD terms too.

Enka in price terms

Enka Insaat 1yr share price chart in TRY

Enka vs. Lira 5yr

5yr chart comparing returns of Enka Insaat shares in TRY vs TRYUSD

Nine is the resistance level where the last bounce was at the beginning of the year and around where the shares are now. A definitive breakthrough nine would signal a good chance for another run.

I see the range between seven and eight as the key support. However, I also note the gap earnings just north of eight that might need to be filled before the next move higher.  


I know attaching narratives is dangerous, but Enka reminds me of investing in Metka/Mytilineos in Greece in the early 2010s—a good house in a bad zip code. Aside from the power plants restarting, I do not see any imminent catalysts for Enka. By buying shares in the current area, valuation, prudent position sizing and a bit of patience will ultimately take care of everything.

I am continuing to work through my shortlist in Turkey and will post about any new names that merit.

One final thing. PLEASE PLEASE PLEASE, if your own work leads you to want to invest in Enka, be aware that the OTC ADR is super illiquid and varies greatly—like now—from the liquid Turkey-listed shares. Be careful.

The Castaway Capitalist

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IMPORTANT DISCLOSURE: As of the date of publication, the Castaway Capitalist maintains a position in ENKAI.

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