Michlol Finance Ltd, through its subsidiary, engages in financing and managing construction projects in Israel. It offers finance to entrepreneurs in the field of residential real estate through a complex of real estate; and provides credit to medium and small business corporations. The company was incorporated in 2017 and is based in Bnei Brak, Israel.

Israel

Michlol Finance Ltd

Financial Services

The company pays dividends on rare occasions. There have only been a few years with dividend payments in 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. 

MCLL.TA reported revenue of ILS 108mn in the last 12 months, up 13% from FY23. The institution earned ILS 0 mn of interest before provisioning and taxes (IBPT) in the trailing 12 months (TTM), a decline of 0% from FY23 The dynamics of more stable income, as measure by recurring income before provisioning and taxes (RIBPT), were rather similar. EPS grew 19% from FY23 to ILS 1.17.

Over the last six months, the stock performance has varied, with an increase following a drop. The stock's price trend wasn't definitive when matched against its global counterparts from the same sector and industry (as depicted above). Over the past six months the stock has exceeded the performance of this peer group by 50ppts and its growth accelerated by 9ppts in the past month. This is equally valid for peers from the same country and industry. Given the stock's valuation versus its peers, its total price movement is mildly favourable.

Another important profitability metric, return on assets (RoA), amounted to 3.1% in the last 12 months, a decrease from 3.2% in FY23. 

Michlol Finance Ltd reported a return on equity (RoE) of 18.1% in the last 12 months, down from 19.7% in FY23. 

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.

MCLL.TA has below average trading liquidity. The average private investor can sell his common position in the stock almost immediately. Liquidity is unstable and becomes extremely unfavourable on the days with the lowest activity. However, under highly turbulent market conditions, the trading volume tends to improve significantly. Another factor to consider is the substantial number of days with zero trading volumes, i.e., without any ability to sell a position. The stock has a small market capitalisation, which usually makes its trading liquidity erratic and unpredictable. 

No other major risks have been identified.

The solvency (credit quality) of MCLL.TA is very low. The credit profile rests on (a) a moderate capital position, (b) substantial asset quality, (с) a moderate corporate governance framework, (d) below average earnings power and cost efficiency, and (e) its very poor liquidity profile. We draw special attention to the fairly weak liquidity position, which could instantly become a critical factor in the case of an unexpected bank run.

In highly turbulent market conditions, MCLL.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, MCLL.TA is volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will move much wider than the index. The stock's losses on its worst days (less than 1-5% of the time) will range from low to mild. 

Based on key historical and expected multiples, the stock is greatly undervalued relative to its peers. In particular, the stock is reasonably priced on P/E, undervalued on P/RIBP. 
	Editor's note: P/CR is Price to Core Revenue (CR), similar to P/S for corporates. CR = Net interest income + Net fee & commission income. P/IBPT is Price to Income Before Provisioning and Taxes (IBPT), similar to EV/EBITDA for corporates. IBPT = Core revenue -- Operating expenses + Non-recurring income. P/RIBPT is Price to Recurring Income Before Provisioning and Taxes (RIBPT), similar to P/FCF for corporates. RIBPT = Core revenue -- Operating expenses. 

Michlol Finance Ltd

ILA 1112

4

Michlol Finance Ltd

ILA 1112

4

Risk factor

Profitability factor

Risk / Profitability

Risk factor

Profitability factor

ILA 1112

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