Mer Group published its second-quarter report. The tax rate in it is low to a degree worth noting.
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The Quarter
| NIS millions | The quarter | Share of revenue |
|---|---|---|
| Revenue | 169.3 | |
| Gross profit | 36.1 | 21.3% |
| Operating profit | 15.7 | 9.2% |
| Pre-tax profit | 11.4 | 6.7% |
| Net profit | 10.2 | 6.0% |
| Basic earnings per share | NIS 0.76 | |
| Balance sheet total | 529.1 | |
| Shareholders' equity | 182.0 |
The Tax: 10.8%
NIS 11.4 million before tax, NIS 10.2 million after. Tax took NIS 1.2 million.
That is less than half Israel's corporate rate.
And this is the phenomenon that recurs across several of today's filings, in different directions.
Today we saw the full range: Electra Consumer at 16.7%, RP Optical at 8.6%, Gilat Telecom at zero - and against them Novolog at 78.8% and Dalia Energy at 72.3%.
And what they all share: the structured quarterly filing does not detail the tax reconciliation, so it is impossible to know the source in any given case.
What is worth holding is that any rate far from 23% is a sign that this line is not "tax on this year's profit" alone. It also includes deferred taxes, carried-forward losses, benefits and prior-year adjustments.
So in a single quarter, the tax rate says less than it appears to - and it is better read alongside the line above it rather than in place of it.
Here: had the rate been 23%, net profit would have been about NIS 8.8 million rather than 10.2 - a gap of roughly NIS 1.4 million.
And the Margins
| Gross margin | 21.3% |
| Operating margin | 9.2% |
| Survival | about 43% |
A gross margin of 21.3% is characteristic of a projects and infrastructure business - pricing is set in the bid, years before execution, and cost materialises over the life of the project.
And survival of 43% is close to what we saw today at Gilat Telecom (40%) and at other services and engineering companies - Afcon showed 49% and Matrix 52%.
And Financing
From NIS 15.7 million of operating profit, NIS 11.4 million was left before tax - NIS 4.3 million was taken out, which is 27.2%.
A middling share, consistent with leverage of 2.9 to one - NIS 529.1 million of assets on equity of NIS 182.0 million.
הזווית שלי
דעה אישית של אילן אברמוב - לא ייעוץ ולא המלצה
What I take from this report is that it reads like a classic infrastructure business, without anomalies.
A high single-digit gross margin, about half of it surviving to operating, financing taking a quarter - and what is left is net profit of 6.0% of revenue.
And what does stand out is the tax. 10.8% adds about NIS 1.4 million to the quarter's profit, and that is 14% of it. In a business earning NIS 10.2 million, that is not marginal.
So, as I wrote today at RP Optical as well, the figure I hold for comparing across quarters is operating profit - NIS 15.7 million. It is the only one that does not depend on a tax line that may not recur.
And what I would look for in the full accounts is the order backlog. At a projects company, a quarter reports on what finished - and what determines the coming quarters is not in these accounts.
(It is important to stress: this is my personal opinion only, and nothing herein constitutes a recommendation to take any action.)
