Mivne Real Estate published its second quarter report. It is the second company today whose operating profit exceeds what its revenue explains, and both tell the same story.
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The Quarter
| NIS millions | The quarter | Share of revenue |
|---|---|---|
| Revenue | 324.9 | |
| Gross profit | 247.0 | 76.0% |
| Operating profit | 293.5 | 90.4% |
| Pre-tax profit | 141.5 | 43.5% |
| Net profit | 123.9 | 38.1% |
| Attributable to shareholders | 122.4 | |
| Basic earnings per share | NIS 0.17 | |
| Total assets | 21,005.5 | |
| Equity | 8,918.5 |
Two Lines, Two Mechanisms
Operating profit exceeds gross profit by NIS 46.6 million.
That is revaluation. Investment property is measured at fair value, and the uplift is booked above the operating line - so the operating line contains both the profit from running the assets and an accounting increase in their value.
And below the operating line the reverse happens: from NIS 293.5 million, NIS 141.5 million was left pre-tax. NIS 152.1 million came off - that is, 51.8% of operating profit.
And that is what makes this pair instructive.
| The revaluation added above the line | +46.6 million |
| Financing took away below it | -152.1 million |
Financing is 3.3 times the revaluation.
And that is the difference between the two: the revaluation is an appraisal that can reverse next quarter. The financing expense is a payment that leaves the company every quarter, regardless of what happens to asset values.
So the figure describing the ongoing business is gross profit, NIS 247.0 million - and it covers the financing expense of NIS 152.1 million by about 1.6 to one.
The Tax and the Balance Sheet
Pre-tax profit of NIS 141.5 million and net profit of NIS 123.9 - meaning tax of NIS 17.6 million, an effective rate of 12.4%.
That is materially below the 23% corporate rate - and at an income-producing property company this is a familiar picture: part of the uplift is not a taxable event until an actual sale.
| Total assets | NIS 21,005.5 million |
| Equity | NIS 8,918.5 million |
| Leverage ratio | 2.4 to one |
Leverage of 2.4 is conservative in this industry. For comparison, Big reported today at 2.9, and Alony Hetz at 3.8.
הזווית שלי
דעה אישית של אילן אברמוב - לא ייעוץ ולא המלצה
Two income-producing property companies reported today, and both show operating profit larger than their revenue explains - but the internal ratio differs between them.
At Big the revaluation added NIS 329 million and financing took away NIS 338. Nearly a draw.
At Mivne the revaluation added 47 and financing took away 152. A factor of 3.3 against the revaluation.
And that difference says something: Mivne is showing a quarter in which profit leans less on appraisal and more on the activity itself. A 76% gross margin that covers financing 1.6 times over is a steadier structure than a quarter in which the revaluation is what carries the line.
And what I take from the two pieces together: at an income-producing property company, the question is not how much the revaluation added but whether the business stands without it. At both of them the answer is yes - and that is the test worth applying to each, every quarter, before looking at the bottom line.
(An important note: this is my personal opinion only, and nothing here is a recommendation to take any action.)
