M.Yochananof and Sons (1988) Ltd operates a chain of Yohananof supermarkets in Israel. It has 26 branches. The company was founded in 1992 and is based in Rehovot, Israel.

Israel

M.Yochananof and Sons (1988) Ltd

Consumer Defensive

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, but the dynamics are somewhat mixed. 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. 

YHNF.TA reported revenue of ILS 4 604mn in the last 12 months, up 13% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS fell 10% from FY23 to ILS 14.53. Market expects EPS to reach ILS 16.18 in FY25.

Over the past six months, the stock has consistently climbed, resulting in 11% total increase. When compared to its international counterparts in the same sector and industry (as shown above), the stock has exceeded their performances, leading by 12ppts in total. There is a distinction between the stock's performance and that of its peers from the same country and industry. Over six months its performance trailed that of this peer group by 5ppts and accelerated its growth by 0ppts in the recent month. Given the stock's valuation versus its peers, its total price movement is neither favourable nor unfavourable.

The company has reported modest EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 12.9% in the last 12 months, up from 11.6% in FY23. 

Historically, YHNF.TA has reported modest net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 4.6%, a growth from 3.4% in FY23. 

Another important profitability metric, return on assets (RoA), amounted to 5.2% in the last 12 months, an increase from 3.6% in FY23. The market analysts predict that RoA will be 4.5% in FY24, again weaker than its peers. 

M.Yochananof and Sons (1988) Ltd reported a return on equity (RoE) of 14.6% in the last 12 months, up from 10.2% in FY23. The market consensus projects an RoE of 12.8% in FY24, again behind its peers. 

In the last 12 months, the return on capital employed (RoCE) grew to 6.6%, below the peers. The consensus estimate for FY24 for RoCE is 11.2%, again behind the peers. 

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 1.6 in the past several years. This ratio implies a good 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.

YHNF.TA has 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. 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, poor working capital management, and an unfavourable capital structure. 

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

Considering past and projected metrics, the stock is 'cheaper' than its peers. In particular, the stock is underpriced on P/E, 'cheap' on EV/EBITDA, undervalued on P/FCF. 

M.Yochananof and Sons (1988) Ltd

ILA 25770

4

M.Yochananof and Sons (1988) Ltd

ILA 25770

4

Risk factor

Profitability factor

Risk / Profitability

Risk factor

Profitability factor

ILA 25770

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