Sella Capital Real Estate Ltd., a real estate investment trust, is engaged in the acquisition, management, holding, and rental of yielding real estate properties in Israel. The company operates office buildings, shopping centers, industrial buildings, and residential apartments for professionals, commercial companies, high- tech companies, and government institutions. As of December 31, 2013, it had a total rentable area of 116,880 square meters and 70,000 square meters of parking areas. The company was incorporated in 2007 and is headquartered in Ramat Gan, Israel.

Israel

Sella Capital Real Estate Ltd.

Real Estate

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 quarterly, which may appeal to investors valuing a regular income stream. 

SLARL.TA reported revenue of ILS 371mn in the last 12 months, up 5% from FY23. The dynamics of cash flow, as measure by free cash flow (FCF), were rather similar. EPS grew 16% from FY23 to ILS 0.96.

The stock's performance has been mixed in the past six months, with growth following a decline. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). The stock has outperformed this peer group by 26ppts over past six months and grown 11ppts faster in the past month. 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 neutral.

The company has reported very strong EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 70.4% in the last 12 months, up from 57.6% in FY23. 

Historically, SLARL.TA has reported very strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 57.4%, a growth from 50.9% in FY23. 

In the last 12 months, the return on capital employed (RoCE) grew to 4.2%, above the peers. 

Sella Capital Real Estate Ltd. reported a return on equity (RoE) of 9.0% in the last 12 months, up from 7.9% in FY23. 

Another important profitability metric, return on assets (RoA), amounted to 3.8% in the last 12 months, an increase from 3.4% in FY23. 

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 0.8 in the past several years. This ratio implies a poor 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.

SLARL.TA has poor 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. 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 tiny market capitalisation, which usually makes its trading liquidity erratic and unpredictable. 

No other major risks have been identified.

The risk of default is high. Among the negative credit factors, we point to weak positions in its industry, excessive margin volatility, weak debt servicing capacity, inadequate interest coverage, and an unfavourable capital structure. We note robust profitability, among the positive credit factors. 

In highly turbulent market conditions, SLARL.TA is not overly volatile. In other words, the stock will fall less than 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 low. 

In normal market circumstances, SLARL.TA is not overly volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will remain relatively stable. 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 'cheap' on P/E, neutral on EV/EBITDA, underpriced on P/FCF. 

Sella Capital Real Estate Ltd.

ILA 883.6

5

Sella Capital Real Estate Ltd.

ILA 883.6

5

Risk factor

Profitability factor

Risk / Profitability

Risk factor

Profitability factor

ILA 883.6

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