Kipa's Rise to Top Turkish Stock Before Merger Baffles Analysts

  • Grocer has outpaced all other benchmark index members in 2018
  • Company now has bigger market capitalization than owner Migros

When it comes to dramatic performances for Turkish stocks, few can rival Kipa’s track record in recent weeks.

Since a proposal by its owner to delist the company before an eventual merger was blocked last month, Kipa Ticaret AS has surged 80 percent in Istanbul trading. That’s made it more valuable than parent Migros Ticaret AS and the market’s best-performing stock in the process. Analysts are baffled.

The gyrations in Kipa’s shares are “wild and hard to rationalize,” according to Deniz Invest analyst Behlul Katas. Investors who have bet on the stock disagree.

Kaan Ozkan, a 27-year-old from the southern coastal city of Antalya, bought the stock in January when it was at 2.6 liras. He based his decision on technical analysis and what he read online, including Twitter posts and discussions in investor forums, he said by phone this week. The supermarket operator traded at 4.67 liras in Istanbul Thursday.

“Kipa may be over-leveraged, but it’s a valuable company,” Ozkan said. “At worst, Migros should compensate Kipa investors at current prices.” The surge in the stock price was triggered by the shareholder vote removing delisting from the merger plan, he said.

Migros, which owns 96.25 percent of Kipa, proposed to take Kipa private before a combination and called an extraordinary general meeting to vote on its 2.56 liras-a-share tender. While shareholders voted turned down that offer, Migros still intends to consolidate the companies by August.

Investors may be betting that a merger with Migros would make Kipa’s stock far more valuable than the parent’s tender price, said Cemal Demirtas, an analyst at Ata Invest in Istanbul. “Earlier this year, in current price-to-book value terms, the valuation of Kipa was attractive, which fueled speculative buying. But that has gone too far now.” Kipa now trades at about five times book value, well above the level of three he regards as attractive.

It’s not the first time Kipa shares have been on a wild ride. When Kipa was in Migros’ sights as a takeover target from Tesco Plc in 2016, the stock surged as minority holders became convinced their shares were worth far more than the sale price.

Kipa has asked Turkey’s market regulator to investigate recent unusual movements and trading volumes in its shares, it said in a Feb. 12 filing to Borsa Istanbul. The 15-day moving average of trading volume is the highest October 2016. Kipa’s concerns failed to halt the advance and there may be more mayhem to come.

“Wild swings lie ahead until the merger of stocks is completed,” said Katas at Deniz Invest.

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