"Globes" spoke with two analysts for explanations for the collapse in the share price of Africa-Israel Investments Ltd. (TASE:AFIL), controlled by chairman Lev Leviev, since it warned that it would post a loss of NIS 720-800 million for the corresponding quarter, due to revaluation of properties held by its Russian development arm, AFI Development plc (LSE:AFID).
Africa-Israel's share price fell 18% on Monday following the profit warning, and is down a further 17.4% by mid-afternoon today to NIS 6.35, giving a market cap of NIS 830 million. AFI Development's share price fell 0.5% in morning trading in London to $0.38, giving a market cap of £185 million.
Leader Capital Markets VP research Alon Glazer said that there were two main concerns about the profit warning: AFI Development's relations with the Moscow Municipality, and the departure of executives from the company. He said that, until now, Africa-Israel benefited from excellent relations with the municipality, and that the pending change does not bode for the company. Much of Africa-Israel's value come from AFI Development's projects in Moscow, and the Moscow Municipality is liable to amend plans, which will adversely affect the company.
Glazer also warns about the recent departure of AFI Development CEO Alexander Khaldey, who also sold his shares in the company, and of Africa-Israel CEO Izzy Cohen. The departure of such senior executives within such a short time is not good news for any company.
Glazer said, "Africa-Israel is doing the best it can with what it has. It reached a difficult settlement, which is fair and it is managing its finances properly, including the reduction of its debt, but it should be remembered that this is a company with assets that are affected by the global crisis."
Glazer concludes that Africa-Israel has always been traded at a price above its net asset value (NAV). "Shareholders believe that the value of its operations will double or triple. The problem is that Africa-Israel has a great many private and trader investors. This week's drop in value is in line with the reduction in real value of the assets. Africa-Israel is not yet traded at a market below NIS 1 billion. Exposure to the company is best through subsidiaries such as Africa-Israel Properties Ltd. (TASE: AFPR) or Africa-Israel Residences Ltd. (TASE:AFHS)."
A top capital market source told "Globes" that Africa-Israel is a high-risk share, because its most important asset is the value of its Russian real estate. "Buying the share in London is much cheaper than buying the share in Tel Aviv. If the fair value of AFI Development is below $0.40, then the value of Africa-Israel is almost zero. The share in Israel is an option on the company in Russia."
"Globes": How significant is the last announcement?
The source: "AFI Development reflects a situation in which the value of its properties in Russia is zero. Obviously these assets will probably rise in value, because they exist, but it will take time. This is a share for gamblers, and it's better to buy the company's bonds."
Published by Globes [online], Israel business news - www.globes-online.com - on August 15, 2012
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