Summit Real Estate Holdings Ltd is a real estate investment firm specializing in the purchase and operation of office buildings and commercial assets, which are leased to numerous commercial and industrial tenants. Summit Real Estate Holdings Ltd was founded in 1965 and is headquartered in Haifa, Israel.

Israel

Summit Real Estate Holdings Ltd

Real Estate

The company pays dividends most of the time. It has paid dividends in almost every one of the past ten years. Dividend per share (DPS) has grown yearly, and there is a clear trend. 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 annually. 

SMT.TA reported revenue of ILS 925mn in the last 12 months, down 2% from FY23. The dynamics of cash flow, as measure by free cash flow (FCF), were rather similar. 

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 8ppts over past six months and grown 2ppts slower 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 44.3% in the last 12 months, up from -15.8% in FY23. 

Historically, SMT.TA has reported very strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 21.6%, a growth from -20.9% in FY23. 

In the last 12 months, the return on capital employed (RoCE) grew to 2.1%, below the peers. 

Summit Real Estate Holdings Ltd reported a return on equity (RoE) of 4.4% in the last 12 months, up from -4.5% in FY23. 

Another important profitability metric, return on assets (RoA), amounted to 1.9% in the last 12 months, an increase from -1.8% in FY23. 

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 0.4 in the past several years. This ratio implies a weak 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.

SMT.TA has very poor trading liquidity. The average private investor can sell his common position in the stock in a single trading day under normal market conditions. Liquidity is relatively stable and remains extremely favourable on the days with the lowest activity. However, please consider that under highly turbulent market conditions, the trading volume tends to decrease 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 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, negligible return on capital, excessive margin volatility, and inadequate interest coverage. We note resilient historical revenue growth and robust profitability, among the positive credit factors. 

In highly turbulent market conditions, SMT.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, SMT.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 minimal. We would also like to highlight the minimal intraday volatility of the instrument. 

Based on key historical and expected multiples, the stock is undervalued relative to its peers. In particular, the stock is overpriced on P/E, of fair value on EV/EBITDA, undervalued on P/FCF. 

Summit Real Estate Holdings Ltd

ILA 5569

4

Summit Real Estate Holdings Ltd

ILA 5569

4

Risk factor

Profitability factor

Risk / Profitability

Risk factor

Profitability factor

ILA 5569

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