Meitav Investment House reported its second quarter on 17 August.
Errors or inaccuracies are possible. Spotted something that looks wrong? Write to me and I will correct it.
The Quarter
| NIS millions | The quarter | Share of revenue |
|---|---|---|
| Revenue | 615 | |
| Gross profit | 393 | 63.9% |
| Operating profit | 225 | 36.6% |
| Pre-tax profit | 225 | 36.6% |
| Net profit | 152 | 24.7% |
| Attributable to shareholders | 143 | |
| Non-controlling interests | 9 | |
| Basic earnings per share, NIS | 1.70 | |
| Total assets | 7,161 | |
| Shareholders' equity | 2,375 |
The Margins, and What They Say About an Investment House
A gross margin of 63.9% is the number of a fee-based business rather than an inventory-based one. There is no raw material in the ordinary sense: revenue is management fees, commissions and trading spreads, and the direct cost is mainly people and infrastructure.
And from gross to operating, NIS 168 million comes off - selling, marketing and administrative expenses. That leaves an operating margin of 36.6%, a high level in any industry.
And a line worth noting: pre-tax profit is exactly identical to operating profit, NIS 225 million. That is, there are no net financing items below the operating line - neither financing income nor expense. A clean structure.
The Tax, and That Is the Outlier
Pre-tax profit stood at NIS 225 million and net at NIS 152 - meaning tax of NIS 73 million, an effective rate of 32.4%.
The Israeli corporate rate is 23%. The gap, some nine percentage points, is not trivial.
What can be said, and what cannot.
What can: an effective rate above the statutory one usually arises from expenses not deductible for tax purposes, from tax on income already taxed at held companies, or from differences between accounting profit and taxable profit.
What cannot: which of those it is. The quarterly report does not set out the tax reconciliation, and I will not assert a cause I cannot see.
What can be said with certainty: had the tax rate been 23%, net profit would have stood at about NIS 173 million instead of 152 - a gap of about NIS 21 million in a single quarter.
The Capital and the Return
| Total assets | NIS 7,161 million |
| Shareholders' equity | NIS 2,375 million |
| Leverage ratio | 3.0 to one |
| Return on equity, annualised | about 24.1% |
The return is computed on profit attributable to shareholders - NIS 143 million times four, over equity of NIS 2,375 million.
Leverage of 3.0 at an investment house is not debt leverage in the industrial sense. A substantial part of the balance sheet at such firms is client assets and matching liabilities, so this ratio says less than it would at an industrial company.
And the Earnings per Share
NIS 1.70 per share. Out of attributable profit of NIS 143 million, that implies about 84 million shares.
הזווית שלי
דעה אישית של אילן אברמוב - לא ייעוץ ולא המלצה
An investment house is a business of margin on assets under management, so the two lines I read are the margin and the tax.
The margin here is strong. A 36.6% operating margin in a business built on management fees and commissions is a level few in the industry reach, and the complete absence of financing items below the operating line says the profit comes from the activity rather than from financing.
And what catches the eye is actually the tax. 32.4% is not a small deviation, and it takes about NIS 21 million in a single quarter relative to the statutory rate. If it is structural, it costs about NIS 84 million a year, which is a meaningful figure against an implied annual profit of roughly NIS 570 million.
And what I will check next quarter: whether that rate repeats. A high effective rate that recurs quarter after quarter is a fact about the structure of the business; a high rate in a single quarter is noise, and the distinction is worth about NIS 84 million a year.
(An important note: this is my personal opinion only, and nothing here is a recommendation to take any action.)
