Africa-Israel Investments Ltd. (TASE:AFIL; Pink Sheets:AFIVY) jumped 20% on Monday, a day when the Tel Aviv 25 Index fell 0.3%. The share rose another 13.6% in morning trading today, after the break for the second Passover holiday. The share has risen over 140% since the beginning of 2009, and the company's market cap has broken through the NIS 4 billion threshold.
The trading volume in Africa-Israel's share has also been extremely high lately. Its average daily turnover in recent months was just NIS 10 million, but has now ballooned to tens of millions of shekels a day. Monday's trading volume was NIS 130 million, the highest trading volume of any share that day, and amounting to 14% of the session's total volume.
What is the reason for the reawakening of interest in Africa-Israel, controlled by chairman Lev Leviev, and in its share, which some analysts had already eulogized? Has the capital market spotted signs of a change, or is it a particularly brutal bear trap?
The trigger for the latest gain in Africa-Israel's share was last week's sale of the holdings in the Ramat Aviv Mall and Savionim Mall by subsidiary Africa-Israel Properties Ltd. (TASE: AFPR) to Ofer Holdings Group subsidiary Melisron Ltd. (TASE: MLSR), which generated a cash flow of NIS 800 million for Africa-Israel.
The sale gives Africa-Israel breathing room and lifted the doubts about its ability to meet its upcoming bond payments. The tail wind from investors has doubled Africa-Israel's price so far this month. Nonetheless, despite the recent surge, the share is still 87% below its peak price.
Capital market sources believe that institutional and foreign investors are trading massively in Africa-Israel's share. They also believe that speculators are exploiting the extreme volatility in the share to make a quick profit. The volatility in Africa-Israel's share is considered quite high for a Tel Aviv 25 Index company. The standard deviation in the share's price has been 85% so far this year, compared with a standard deviation of 35% for the index as a whole.
The surge in Africa-Israel's share also led to assessments that an investor may become a party at interest in the company. This is not considered likely, however, because it would require an investment of NIS 180 million. In principle, the rise in the share can be attributed to its fundamentals. Africa-Israel has sold off a number of assets recently, including the Ramat Aviv and Savionim malls, as well as properties in New York, at good prices. The company may sell more assets, such as its share in Derekh Eretz Ltd., the franchisee of Road 6 (the Yitzhak Rabin Highway, also known as the Cross-Israel Highway).
Capital market sources note that one reason for the rush for Africa-Israel's share is its low public float, amounting to just NIS 950 million.
On trader said, "There are institutional investors that sold off their entire holdings in Africa-Israel during the crisis, and they now see the share outperforming. They're now afraid that their portfolios will under-perform the indices. Combined with the fact that the share has only a small float, they're under even more pressure, which is why they're rushing to buy shares."
Despite the enthusiasm, it is still hard not to wonder whether investors are getting carried away again. It is still very hard to say what Africa-Israel's real value is, because of the uncertainty hanging over many of its assets, especially its properties in Russia held through AFI Development plc (LSE:AFID), and in Eastern Europe, held through AFI Europe BV, which make it difficult to set a valuation for the company as a whole.
It is important to remember that although Leviev has sold off assets for good prices lately, they were his best and strongest assets. It will be interesting to see whether, once the good bits are sold off, he will be forced to sell the company's more problematic assets, and if so, what price he will get for them.
Nonetheless, none of these question marks appear to be worrying investors in Africa-Israel at the moment, as they appear to be mesmerized by the possibility of high short-term returns from the upswing.
Published by Globes [online], Israel business news - www.globes-online.com - on April 16, 2009
© Copyright of Globes Publisher Itonut (1983) Ltd. 2009