Making waves in Turkey: We swam from Europe to Asia to meet with a CEO
Burton Flynn and Ivan Nechunaev
September 2024
On our recent trip to Turkey in search of hidden gems, we experienced very high prices, met several promising listed companies, and made history by crossing from Europe to Asia aswim to get a CEO meeting done.
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A fast-food burger for $15
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Having arrived in Istanbul, we bought a Whopper from a Burger King joint at the airport. Looking at the bill, we realized that it cost us $15. We were puzzled: at the Helsinki airport it costs $10. Later on, we were surprised many more times by sky-high prices at the cafes, stores, and gas stations – all of which weren’t as full as on our prior visits. Clearly, inflation has sustained its wild run in Turkey, while the ongoing strict orthodox monetary policy agenda with 50% interest rates has already suppressed consumer demand and eroded people’s purchasing power. A true story: the Turks travel to Greece for summer vacations now due to high prices at home!
This inflationary experience and the anecdotal downbeat consumer sentiment we felt on the ground made us question whether the current economic agenda carried out by the internationally respected finance minister and central bank governor will run its intended course to full inflation annihilation before the next major elections, or – if people’s pain becomes too profound before then – frustrated like so many times before, the chief of state will reinstall low interest rates and hire economic loyalists who will propagate that high interest rates are the enemy of the people.
When prices are high, consumers’ shopping carts are empty
​Bring NASDAQ to Turkey!
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We met with top executives of several listed companies which still manage to grow and prosper even in this kind of challenging macroeconomic environment and even despite the recently implemented inflationary accounting standards which keep the CFOs scratching their heads as they think about the proper ways to implement them.
One such success story was an $800m technology business – second-largest ecommerce player in Turkey which is controlling a third of the market. Notwithstanding broader economic difficulties, the company keeps growing sales in double digits and is on track to profitability. However, despite its dominant local standing, net cash position, and the highest net promoter score among peers, it trades at a multiple of only 0.5x P/S with a cash position equivalent to 35% of its market cap – while its global peers trade in the range between 3x and 7x P/S. Our only explanation for this discount is that the stock is listed only on NASDAQ in the US where not many investors care about a Turkish technology champ. We made a recommendation to the management to list the company locally on Borsa Istanbul which we believe could unlock tremendous shareholder value.
Meeting with the CFO and IR of an $800m ecommerce leader
EV chargers made in Turkey – better than Tesla’s
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Another impressive case was a $200m electrical contractor foraying into EV charger manufacturing. Going from strength to strength, it has been bagging new contracts in its conventional business thanks to being the “last man standing” benefiting from being able to select the highest-margin projects: many of its less efficient peers have gone out of business and the competitive landscape turned highly favorable. The company won sizable jobs servicing new metro lines, hospitals, and real estate developments, and has grown its backlog to a record-high figure – three times larger than a year ago! At the same time, it has vastly improved efficiency in terms of labor force quantity, which helped it enhance profitability and boast 40%+ EBITDA margins.
The new EV charger business keeps developing, and the CEO is optimistic about the charger’s capacity which should be highly competitive even against the top global brands. We appreciated the company’s culture of caring for the employees and tested their staff massage chairs to help relieve our backs sore from flying.
Meeting with the CEO and CFO of a $200m electrical contractor
Maximizing value for patient investors
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We also met with a $2b private healthcare business operating hospitals in Turkey for local patients as well as medical tourists whom we saw a plenty of at the hotel where we stayed. The company has been acquiring and opening new clinics without showing any signs of slowing, and has been growing earnings in double digits even when adjusted for inflation. Creating additional value for shareholders, the firm has recently purchased 8% of its own shares and then canceled them, reducing the number of shares outstanding and thus increasing earnings per share, all to the linking of investors.
Meeting with the CFO and IR of a $2b hospital operator
First in the history of mankind – we did it!
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A highly peculiar, unforgettable, and truthfully unimaginable situation unfolded when we tried to meet with the CEO of a $150m leather goods company which makes and exports leather bags, runs a factory in Italy for the world's luxury brands, operates a retail chain in Turkey under its own brand, and has a joint venture with Samsonite for exclusive distribution of its luggage in Turkey.
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Chasing the champion
The company's CEO is an avid endurance sports enthusiast, and it's nearly impossible to catch him for a meeting at a conventional time because of his strict exercise regimen. For example, in the past, we often had to meet him at 6:00 am sharp, at glorious dawn, at his factory in Istanbul. This time, meeting in Istanbul was not possible due to time constraints related to the CEO's yet another athletic endeavor: he was out of town as he was scheduled to compete in a 4-kilometer open water swim across the strait of Dardanelles (also known as Hellespont) in a town of Canakkale located four hours southwest of Istanbul.
We realized that our only option to meet with this champion CEO was to hit the road to Canakkale and try to ask him our questions before and after his swim, time permitting, as he didn't plan to stay in town long after his race. In order to have the best access to the CEO in such an environment of highly limited time resources, we decided to also sign up for the same open water race so that we could spend sufficient time interrogating him – in a rather unusual meeting setting. The swim of Dardanelles that we had the courage to register for is considered the oldest open water swim in the world: history has it that none other than the esteemed Romantic English poet Lord Byron conquered the strait by swimming on 3 May 1810, setting a heroic athletic precedent and starting the modern marathon swimming tradition.
After making it to Canakkale by crossing the infamous 1915 Canakkale Bridge – at 334m the second-tallest bridge in the world and at 4.6km the longest bridge in Turkey which cost nearly $3b to build – we were ready to race and chase, to cross thy stream, broad Hellespont!
Registering for the historic swim across Dardanelles
Making it into the top-95%
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Lord Byron had Lieutenant Ekenhead as his guide when swimming the strait back in 1810, and we had the Mr. Champion CEO as ours in 2024: before the race, at 6am, we received guidance from the CEO on how to navigate the strong currents in the Dardanelles when swimming (as well as the strong currents in the Turkish economy when doing business and dealing with inflationary accounting), and later appreciated his inevitable insights when we managed to cross the finish line and complete the race in the top-95% of all participants (which may have even been a more impressive achievement than our fund’s top-1% ranking out of all emerging markets funds in the last 5 and 10 years, judging by the level of effort involved).
Squeezing one of the many parts of our CEO meeting at 6am before the race
Frankly, we quite like swimming and so we were absolutely delighted to participate in this race on the Victory day in Turkey, feeling the historical significance of the swim – and then also the agony and the muscle cramps from racing – and fully confirming the thesis of one great swimming coach of ours who liked to say "Struggle is happiness".
Preparing for the race in between CEO meeting questions
One for the history books
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The most astonishing part of this swim meeting adventure of ours is the following: to the best of our knowledge, what happened in Canakkale and the strait of Dardanelles on 30 August 2024 – 214 years after Lord Byron's epic swim – will forever remain in the history of mankind as the world's first investor meeting which involved cross-continental swimming! We started our CEO interview on the European side of Turkey, swam across Dardanelles from Europe to Asia, and finished our meeting on the Asian side of Turkey. It feels good to become the first in the world to achieve such an astounding feat.
Collecting our awards in between CEO meeting questions
Benefiting from Chinese sweatshops
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What we learned in our meeting is that despite the ongoing economic challenges at home in Turkey the company keeps investing in business efficiency and is increasing its customer appeal to younger audiences by signing up-and-coming Turkish movie stars as brand ambassadors. Its Italian factory, the crown jewel in the firm’s high-quality diversified business portfolio, is in such demand that the best global luxury brands have to wait in line to test its capabilities, and the CEO has to hire more staff to increase production capacity.
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The recent scandal in Italy where luxury giants such as Dior and Armani were accused of outsourcing production to sweatshops with exploited Chinese illegal immigrant workers only helps the company: its reputation is stellar, its factory employs people from the local Tuscan villages, and the quality of its products is top-notch as evidenced by many years of collaboration with the best global luxury producers. As a result, afraid of any reputation damage related to Chinese sweatshops, a lot of luxury brands are now turning to this Turkish company’s Italian factory for production, and the CEO has been spending a lot of time in Italy, improving the factory and negotiating new production contracts.
Visiting the company’s Italian factory last year on our due diligence trip
Swimming where others won’t
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While we assume there have been intercontinental company meetings performed in the comfort of cushy business class seats on flights between New York and London or Singapore and Hong Kong, we are fairly certain our unique swimmeeting feat is absolutely unparalleled. In the past, we have flown, driven, sailed, biked, climbed, and run to get our CEO meetings done, but this was the first time we had to swim. We clearly keep going where others don't, the emerging markets investors traveling the world in search of hidden gems we are!
Having completed our historic cross-continental CEO meeting by way of swimming – cramped, hungry, happy, exhausted yet somehow energized at the same time – we began to ponder as our minds wandered in a post-race euphoria: over 200 years passed since the first modern swim of the Dardanelles, people now swim faster than ever, trade bonds and stocks and bitcoin, use smartphones and AI, but Byron is still the champion in writing: what gives?
At that moment, we knew: yet another trip of ours – full of work, hassle, stories, purpose, and now also rhetorical thinking – was complete. We ate delightful local Turkish food (far better than $15 burgers) and went straight to the airport from the beautiful surroundings of Canakkale – still wearing our flip-flops and sports attire from the race.
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For me, degenerate modern wretch,
Though in the genial month of August,
My dripping limbs I faintly stretch,
And think I've done a feat today. (Lord Byron, 1810)
Leaving Turkey from the Istanbul Airport after a tough few days of work
Rewarding ourselves for the feat
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At the mesmerizing new international Istanbul airport, we stopped by a Samsonite store owned by the CEO's company and treated ourselves to new luggage and backpacks, enjoying the very friendly service of the shop's sales people. For the last couple of years, we have been carrying around the world the leather business bags made by the Turkish company itself – fully satisfied with their design and quality – and will now test the products of its joint venture partner.
And then we took off, onwards to new phenomenal emerging markets experiences.
