Isramco Negev 2 Limited Partnership engages in the exploration, development, and production of oil, natural gas, and condensate in Israel, Jordan, and Egypt. The company's properties include the Tamar and Levitan reservoirs; and Shimshon possession. It serves various customers, as well as Israel Electric Company Ltd. The company was incorporated in 1989 and is based in Petah Tikva, Israel.

Israel

Isramco Negev 2 Limited Partnership

Energy

The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, but the dynamics are unclear. In the past 12 months, the dividend yield has barely been above zero and was substantially below that of its peers. At the same time, the average five-year yield has been significantly higher and exceeded nearly all its peers. The company distributes nearly all its profit as dividends (payout ratio above 90%, a negative factor). It will not be easy to sustain such an extreme payout ratio. It may also indicate a company's lack of profitable growth opportunities, which suggests doubtful prospects. On average, the company pays dividends twice a year. 

ISRA.TA reported revenue of USD 510mn in the last 12 months, up 7% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS grew 2% from FY23 to USD 0.05. Market expects EPS to reach USD 0.00 in FY25.

The stock has been growing steadily in the past six months, adding 39% in total. The stock has outperformed its global peers from the same sector and industry (as shown above), surpassing them by 52ppts in total. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is 'fair'.

The company has reported very strong EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 49.7% in the last 12 months, up from 48.0% in FY23. 

Historically, ISRA.TA has reported very strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 28.4%, a growth from 27.8% in FY23. 

Isramco Negev 2 Limited Partnership reported a return on equity (RoE) of 24.0% in the last 12 months, up from 23.7% in FY23. 

Another important profitability metric, return on assets (RoA), amounted to 11.1% in the last 12 months, an increase from 10.6% in FY23. 

In the last 12 months, the return on capital employed (RoCE) grew to 13.0%, above the peers. 

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 3.9 in the past several years. This ratio implies a excellent shareholder value creation. 

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

ISRA.TA has below average trading liquidity. The average private investor can sell his common position in the stock in a single trading day. Liquidity is usually quite stable and remains extremely favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions. The stock has a tiny market capitalisation, which usually makes its trading liquidity erratic and unpredictable. 

No other major risks have been identified.

The risk of default is minimal. We note robust profitability, solid return on capital, and solid cash flow generation, among the positive credit factors. Among the negative credit factors and we point to slow historical revenue growth, excessive margin volatility.

In highly turbulent market conditions, ISRA.TA is as volatile as an index. In other words, the stock will move with the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be limited. 

In normal market circumstances, ISRA.TA is as volatile as an index. Put differently, without outstanding market volatility or shocking company news, the stock's price will move with the index. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to negligible. 

Based on key historical and expected multiples, the stock is greatly undervalued relative to its peers. Specifically, the stock is fairly valued on P/E, neutral on EV/EBITDA, underpriced on P/FCF. 

Isramco Negev 2 Limited Partnership

ILA 225.8

6

Isramco Negev 2 Limited Partnership

ILA 225.8

6

Risk factor

Profitability factor

Risk / Profitability

Risk factor

Profitability factor

ILA 225.8

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