- We now assume a bear case scenario for Turkey
- We project additional airline and event catering business to offset the decline in Turkey
- Estimates lowered for the next 3 years in order to reflect the weak Turkish lira
- New target price of EUR 50 (EUR 63)
- Rating upgrade to BUY (HOLD) amid attractive valuation multiples

Based on our new (below-consensus) estimates and using a bear-case scenario for Turkey from 2020e the shares of DO & CO are extremely under-valued, in our opinion. Hence we upgrade the shares to BUY (from HOLD) with a new target price of EUR 50 (EUR 63 previously), which offers more than 20% share price upside. We have moderately lowered our earnings estimates for the next three years in order to reflect the recent weakening of the Turkish lira. Elsewhere we also cut our projections for the periods 2020/21e to 2022/23e in order to model a bear-case scenario for Turkey.

Bear case assumed in Turkey: The most important topic for the group is the upcoming decision about airline catering for Turkish Airlines at the 3rd airport in Istanbul. We think that 3 major scenarios are possible for this contract: 1) best case - DO & CO continues to provide catering services to Turkish Airlines and other airlines in Turkey, 2) bear case - the contract for Turkish Airlines at the new airport in Istanbul will not get renewed, but DO & CO continues to supply all other gourmet kitchens in Turkey and 3) worst case - termination of all Turkish activities. We assume the bear-case scenario for the group primarily because we think that Turkish Airlines could opt for a cheaper catering supplier in order to maintain its low-cost base. This, in turn, should lead to a reduction of sales from Turkey by EUR 189 mn from January 2020e.

Strong organic growth elsewhere: British Airways (BA) is currently tendering its entire catering activities for its main transportation hub, Heathrow Airport, in London and a decision is expected for spring 2018e. We assume that the aggregate catering volume for BA is at least as big as the catering business for Turkish Airlines. Moreover, we reckon that there are other tenders for catering activities from large European airlines which could be decided in 2018e. Our assumption is that DO & CO will win a few larger European tenders for catering activities for a total amount of EUR 70 mn, from 2020e onwards. These new airline catering contracts, together with additional football catering business, should partly compensate for the loss of business with Turkish Airlines from 2020e.

Massive under-valuation: Based on our new (below-consensus) estimates and using a bear-case scenario for Turkey from 2020e the shares of DO & CO are extremely under-valued relative to peer multiples now. For 2017e the group trades at an EV/EBIT(x) of 10.1, which is 45% below the sector. The low multiples for the group are driven mainly by angst regarding the group´s entire business in Turkey. We also note that the minority market values are shrinking pro-rata in case of a loss of any Turkish business. Moreover, we assume that capital expenditure will be cut in the event that the group does not win the tender for the 3rd airport in Istanbul.

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