To OTC Journal Members:
 
 

The Next China-Like Growth Story They Never Saw Coming

Here's a quick quiz: What country saw a 6.5% increase (yoy) in its third quarter GDP after a second quarter improvement of 10.2%? What country has the second-fastest growing energy market in the world right now? And, what country is going to invest $130 billion into its energy market over the next ten years?

If you're like about 99% of investors, you'd probably say 'China' was the answer to all three questions... a country that has dominated headlines for the last couple of years because of rapid economic growth and an accompanying growth in energy consumption.

It's not China though. It's Turkey - one of the best emerging market opportunities out there right now, yet an opportunity that most other investors are simply overlooking.

Better still, there's one company in particular that's positioning itself smack dab in the heart of Turkey's growth. It's TurkPower Corporation (TRKP).

Here's a closer look at this country's incredible growth story, and where TurkPower fits in. Prepare to be blown away.
 

Timing Is Everything

In simplest terms, Turkey is in the midst of a modern day industrial revolution. It actually started a few years ago, was bumped around by the global recession in 2008, but resumed its rapid pace in 2010.

As for exactly where Turkey is in its development timeline, think China in 1978. That was roughly the point when China's scales tipped from being an agriculturally-centered state to being an industrial-driven state; the hyper-acceleration began in the late 80's and early 90's.

For reference, in the 1960's about 60% of China's workforce was involved in agriculture. Now less than 30% if its workers are agricultural workers, and the number shrinks every year. China was - and is - still growing its industrial capacity.

And investors fared well as a result. Though Chinese stocks were practically impossible for outside investors to own early on, since the low of 1990, Chinese stocks have returned about 2700%. For comparison, U.S. stocks have returned about 320% for the same period.

What does any of this have to do with Turkey? Lots. Turkey is essentially where China was in the 80's, though Turkey may grow at an even faster clip over the next 20 years than China did over the last 20. In fact, the OECD thinks Turkey's is poised to be the fastest-growing economy in Europe through 2017, with a forecasted annual GDP of 6.7%. Investors, almost needless to say, stand to gain in a huge way.

Now that's impressive, but it's not even the most interesting part of the story.
 

Energy at the Heart of it All

In 2010, Turkey's exports rose by 11.3% as the country manufactured everything from cars to clothes, and sold them to customers ranging from Ireland to Iraq. Point being, it's got significant diversity in terms of products as well as buyers. Moreover, the growth in exports is anticipated to keep growing.

To produce more and more goods though, the country needs more of at least one thing... electricity. The growing demand for energy is outpacing the capacity to create it, and the next few years are going to see a stunning number of new power plants built in the country. All told, Turkey needs to add between 10,000 MW and 14,000 MW (let's call it 12,000 MW) of power generation capacity by 2020. That's a hefty 30% increase in power capacity to be built in a short period of time. In fact, Turkey's energy market is the second-fastest growing energy market in the world.

Enter TurkPower Corporation.

Funny part about building an electricity-generating power plant... you can't just stick a shovel in the ground and plug your outgoing wires into the grid a few months later. There's a ridiculous amount of planning, licensing, and red tape to work through. Then someone has to run the plants. Most of all, however, there's a big need for connecting these projects with investors.

TurkPower does all of those things, each of which bears a nice fee.

As for how much we're talking about here, the early-November deal offers some scope on how much can be made by brokering these deals to investors. It was on November 3^rd we learned TurkPower Corporation had been signed as a consultant and investment presenter for a 162 MW hydroelectric power plant, which is slated to begin construction later this year. The project is expected to cost about $300 million, and TurkPower is scheduled to receive between 1% and 3% of the deal. That's roughly $6 million.

It's hardly the only deal TurkPower has garnered in just its first few months of operation though. In early December, the company was brought on board a 500 MW project to facilitate the construction of a lignite thermal power plant. Though the specific terms of the deal were not published, the whole plant itself is estimated to cost $1.26 billion, 30% of which will be financed through equity. Assuming a conservative possibility here - 1% of the equity portion of the financing - that still works out to be in the $4 million range. There may be actually more in store here though.

In October, TurkPower inked a deal with Enerpro to front a 1320 MW coal power plant in the Ceyhan area of Turkey. It's projected to be a deal worth a total of $2 billion, with 30% of it being financed via equity. The company is being compensated for its consulting work in addition to up to 2.5% when/if distribution and production deals are made. Though it's not clear what this could mean in terms of a revenue contribution, again, it's apt to be in the millions.

Before that, the company took on consulting projects for a 410 MW solar power facility. We have to assume comparable dollars are on the table here as well.

You get the idea here; though for all intents and purposes it's a start-up, there's plenty of revenue - millions - already being lined up for TurkPower.
 

Bottom Line

Per the deals and the rough math cited above, the company appears to have already lined up a few million in revenue from projects that we can find details for, and there's probably that amount again coming from the projects that weren't detailed.

Whether that's a high or low estimate, however, isn't even the point - those deals were put together in just the span of the last few months. Assuming new projects are added at the same pace in 2011 as these were, tens of millions could be on the way on an annual basis. Not bad for a company worth a little more than $40 million right now.

Here's the thing... you read the story about Turkey's need for more energy capacity. About 12,000 MW more is going to be needed by 2020, and the projects above only add about 2,400 MW. Given the company's clear expertise in the arena though, it would be naive to think the company won't accelerate the pace of new deals as time moves on. Add in the recurring revenue activities like plant management and consulting work, and TurkPower simply makes for a great long-term emerging market holding.

TRKP shares have been trading nominally around $0.45 of late, with a swing of the price pendulum in both directions in the middle of last year. Now that the stock's settled down though, but before this great story starts to spread on its own, it's an ideal time to step in. It's not going to hover at these levels forever. Better to get before everyone else is clamoring to get in on this incredible growth story.