Paz Energy 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 | 5,714 | |
| Gross profit | 1,388 | 24.3% |
| Operating profit | 474 | 8.3% |
| Pre-tax profit | 410 | 7.2% |
| Net profit | 321 | 5.6% |
| Basic earnings per share, NIS | 29.8 | |
| Total assets | 10,565 | |
| Shareholders' equity | 3,407 |
The Margin Ladder
This is the clean way to read a fuel and retail company, because each rung says something about a different part of the business:
From 100% to 24.3% - this is the gross margin, and this is where the cost of the fuel itself sits. In an industry where the raw material is a traded commodity, this stage is governed largely by the oil price and the dollar rate rather than by management.
From 24.3% to 8.3% - this is the gap between gross and operating profit, meaning about NIS 914 million of operating, selling and administrative expenses in a single quarter. This is the stage that is under control: stations, convenience stores, staff and logistics.
And from 8.3% to 7.2% - net financing expenses of NIS 64 million.
The Balance Sheet
| Total assets | NIS 10,565 million |
| Shareholders' equity | NIS 3,407 million |
| Leverage ratio | 3.1 to one |
Leverage of 3.1 is modest for a fixed-asset-heavy business like a filling station network. And at the same time, return on equity for the quarter, annualised, is about 37.7% - NIS 321 million times four, over equity of NIS 3,407 million.
That combination is the striking thing in these numbers. A return on equity of about 37.7% produced on leverage of only 3.1 says the return comes from the operation rather than from the financial structure.
A company generating that return on low leverage is earning on the assets themselves, not on the borrowing that financed them.
The Tax
Pre-tax profit stood at NIS 410 million and net at NIS 321 - meaning tax of NIS 89 million, an effective rate of 21.7%.
That is close to the Israeli corporate rate of 23%. An effective rate slightly below the statutory one is an ordinary picture, not a one-off item inflating the bottom line.
And the Earnings per Share
NIS 29.8 per share for the quarter. Out of net profit of NIS 321 million, that implies about 10.8 million shares - a relatively small count, which explains why the earnings per share looks so high next to other companies in the daily table.
This is a technical point rather than an economic one: earnings per share depends on how many pieces the cake was cut into, and says nothing about its size.
הזווית שלי
דעה אישית של אילן אברמוב - לא ייעוץ ולא המלצה
The number I read in a fuel company is not the revenue but the gross margin, and everything else follows from it.
Revenue of NIS 5.7 billion in a quarter sounds large, but in this industry it mostly reflects the oil price and the volume that went through the pumps. A company can post a jump in revenue because fuel got more expensive and earn exactly the same. A 24.3% gross margin is the number that says how much is left after the cost of the goods.
And what interests me in the ladder is actually the middle rung. NIS 914 million of expenses between gross and operating is where management actually operates - the stations, the stores, the people. That is where the difference lies between a well-run network and a poorly-run one, not in an oil price nobody at the company sets.
And the second line I read is the tax. An effective 21.7%, slightly below the statutory rate, says the bottom line is clean of one-off items. Profit of NIS 321 million resting on an ordinary tax charge is profit the next quarter can be measured against.
(An important note: this is my personal opinion only, and nothing here is a recommendation to take any action.)
