Lapidot Capital published its second-quarter report, and its top line - NIS 4,145.7 million - is the highest among the 32 Israeli companies that filed today.
But the profit that actually reaches shareholders is less than two thirds of net profit. And the explanation is not in the business, but in the structure.
Errors or inaccuracies are possible. Spotted something that looks wrong? Write to me and I will correct it.
What This Company Holds
Lapidot Capital is not a contractor and not a manufacturer. It is a holding company, and its report consolidates several entirely different businesses.
Per the filing, these are the reportable segments:
| What it does | |
|---|---|
| Danya Cebus | Building contracting and infrastructure contracting |
| Africa Israel Residences | Residential development and real estate |
| Sunny Cellular Communication | Import and marketing of mobile phones and accessories |
And above them an "other" segment, which includes land development at Africa Investments, water infrastructure, international trade, financial investments, and oil exploration and production through the Lapidot-Heletz limited partnership.
And the sentence that explains the whole report sits in the same paragraph:
Danya Cebus and Africa Israel Residences are "public companies under the control of Africa Israel Investments".
That is, Lapidot consolidates into its report companies that have shareholders of their own, and that trade separately on the exchange.
And that is precisely what creates the gap between net profit and attributable profit - and it is not a flaw but a mathematical consequence of the structure.
The Quarter
| NIS millions | The quarter | Share of revenue |
|---|---|---|
| Revenue | 4,145.7 | |
| Operating profit | 246.8 | 5.95% |
| Pre-tax | 232.7 | 5.6% |
| Net profit | 187.6 | 4.5% |
| Attributable to shareholders | 112.8 | 2.7% |
| Non-controlling interests | 74.7 | |
| Basic earnings per share | NIS 1.86 | |
| Balance sheet total | 10,674.6 | |
| Shareholders' equity | 4,220.2 |
The Two Lines That Define the Report
The first: 39.8% of net profit does not belong to shareholders.
Of NIS 187.6 million, NIS 74.7 million is attributed to non-controlling interests.
So anyone reading "net profit of NIS 187.6 million" and dividing it by the share count gets a number about 66% higher than what actually stands behind the share. Actual earnings per share are NIS 1.86, derived from NIS 112.8 million - not from NIS 187.6 million.
This is the phenomenon that recurred repeatedly this reporting season - I saw it at Neto Holdings, at G City and at Arit Industries. But it takes on particular meaning at a holding company, because there it is not an anomaly - it is the operating model.
And the second, in the opposite direction: financing barely touched the profit.
From NIS 246.8 million of operating profit, NIS 232.7 million was left before tax. Only NIS 14.0 million was taken out - 5.7%.
And that is an unusually favourable figure at a company with a NIS 10.67 billion balance sheet.
Leverage stands at 2.53 to one - that is, liabilities of about NIS 6.45 billion. A company carrying that debt and paying NIS 14 million on it in a quarter either enjoys good financing terms, or much of its liability is not interest-bearing debt - for example advances from apartment buyers, which are an operating liability rather than a financial one.
In a business that consolidates residential development, the second explanation is particularly plausible - but the structured filing does not detail it, so I do not assert.
And the Margin That Tells You About the Business Mix
An operating margin of 5.95% sounds low, and it is exactly what this mix should produce.
| Typical margins | |
|---|---|
| Building and infrastructure contracting | Low - competitive tender work |
| Residential development | Higher, and recognised at points in time |
| Mobile import and distribution | Very low - distribution |
When the three are consolidated into one line, the result is dominated by the large and thin ones.
So at a holding company, a consolidated margin says less than it seems. What matters is how each segment performs separately - and that sits in the notes, not in the structured file.
What I Will Check Next Quarter
| The segment split | Which of the three contributed the profit, and which detracted |
| Attributable profit | 39.8% to the minority - whether the ratio holds |
| Financing expenses | 5.7% of operating this quarter - very low |
| Danya Cebus and Africa Residences | They report separately, and can be cross-checked |
| The "other" segment | Water infrastructure and oil - small, but different in nature |
הזווית שלי
דעה אישית של אילן אברמוב - לא ייעוץ ולא המלצה
A holding company is one of the report types easiest to misread, and this one demonstrates why.
The top line, NIS 4.15 billion, is a real number - and also meaningless on its own. It measures the turnover of a group containing a contractor, a developer and a mobile phone distributor. There is no decision an investor can take on the basis of that sum.
And what I try to hold onto when reading a holding company is two questions only: how much of the profit actually reaches the shareholder, and what the holdings are worth relative to the company's market value.
The report answers the first: NIS 112.8 million out of NIS 187.6 million. It does not answer the second - and when the held companies trade themselves, that can be computed from outside. That is the genuinely interesting calculation at a company like this, and it is not in the quarterly report.
And what does deserve a positive note is the financing line. NIS 14 million on a NIS 10.7 billion balance sheet is a ratio most of the companies I read this month would have been glad of - see Prime Energy, where financing took two and a half times the entire operating profit.
So the line I will open the next report with is not revenue, but the segment split.
(It is important to stress: this is my personal opinion only, and nothing herein constitutes a recommendation to take any action.)
