Dorsel published its second-quarter report. According to the filing, the company operates in income-producing property - investing in assets for the technology sector, along with industrial, logistics and commercial assets, mainly in Israel and also in England and Cyprus.
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The Quarter
| NIS millions | The quarter | Share of revenue |
|---|---|---|
| Revenue | 13.2 | |
| Gross profit | 9.3 | 70.3% |
| Operating profit | 6.4 | 48.1% |
| Pre-tax loss | -5.6 | |
| Net loss | -7.4 | |
| Basic loss per share | -NIS 0.35 | |
| Balance sheet total | 1,597.4 | |
| Shareholders' equity | 600.4 |
The Figure That Explains the Quarter
Revenue of NIS 13.2 million, and expenses below the operating line of NIS 12.0 million.
And this is the comparison worth holding, because it is more direct than any ratio.
The cost of holding the assets this quarter was almost identical to all the income they produced.
And the explanation is in the balance sheet: NIS 1,597.4 million of assets on equity of NIS 600.4 million - that is, about a billion shekels of liabilities, and that is what generates the financing charge.
The ratio of balance sheet to quarterly revenue is 121 times - among the highest of the 40 filers today. For comparison, Prime Energy stands at 52 times and Nofar at 65 times.
And in income-producing property that ratio is expected: the asset is expensive, and the income from it is spread over years. What is not expected is for the income not to cover the cost of funding it.
And What This Quarter Did Not Include
Operating profit, NIS 6.4 million, is below gross profit, NIS 9.3 million.
And that is an important fact, because it is the reverse of most of the property companies we saw today.
Investment property is measured at fair value, and an increase in value is recorded above the operating line. So when operating profit is higher than gross profit, the difference is usually a positive revaluation.
At Rani Zim it added NIS 26.6 million, at G City NIS 14 million, and at Big NIS 329 million.
Here the direction is reversed: operating profit is NIS 2.9 million below gross profit. That is, the quarter does not rest on an accounting increase in value - what appears in the operating line is close to the result of actually operating the assets.
And I read that as a datum rather than a flaw. A quarter without a positive revaluation is a quarter in which the numbers say what they say. But it also exposes the ratio a revaluation would have concealed: NIS 9.3 million of net income from the assets, against NIS 12.0 million of cost to hold them.
And the Tax That Increased the Loss
A pre-tax loss of NIS 5.6 million, and a net loss of NIS 7.4 million.
That is, a tax charge of about NIS 1.8 million was recorded - despite the quarter ending at a loss.
A loss does not automatically entitle a company to a tax refund. It creates a deferred tax asset only if future profit is expected to offset it against - and when that assumption weakens, the company does not recognise the asset, and sometimes reverses one recognised in the past. In parallel, in a group with several companies, a profitable subsidiary may be paying tax even while the group is loss-making.
The structured filing does not detail, so I do not assert. And this is the same phenomenon we saw at Israir yesterday.
הזווית שלי
דעה אישית של אילן אברמוב - לא ייעוץ ולא המלצה
What I take from this report is the simplest ratio you can compute on it.
The assets produced NIS 13.2 million in the quarter, and cost NIS 12.0 million to hold. That is the whole story, and every other ratio in the accounts - a 70.3% gross margin, a 48.1% operating margin - is entirely correct and does not change it.
And what should be said fairly is that this is not necessarily a lasting position. In income-producing property, two things move that ratio: occupancy and rent on one side, and interest rates on the other. An asset filling up raises the numerator; debt repaid or rates falling shrink the denominator.
And what does signal risk is that the company sits at a point where there is no margin. When income equals the cost of funding, any small adverse change in either deepens the loss immediately.
So the number I will follow is not net profit - which is in any case affected by a tax line - but the ratio between gross profit and financing expenses. Today it is 9.3 against 12.0, that is 0.8 to one.
And what I would look for in the full accounts is occupancy across the assets and a breakdown by country. Assets in Israel, England and Cyprus are exposed to three different interest-rate environments - and the difference between them feeds directly into that same denominator.
(It is important to stress: this is my personal opinion only, and nothing herein constitutes a recommendation to take any action.)
