Cruising to a Bruising in Europe

Whether you invested through mutual funds, ETFs or picked your own stocks, Europe's exchanges were badly burned by the credit crunch that followed the American subprime mortgage meltdown.

If you chose to invest in shares this year and selected Europe as your venue, you probably are licking your wounds right now. Whether you invested through mutual funds, ETFs or picked your own stocks, Europe's exchanges were badly burned by the credit crunch that followed the American subprime mortgage meltdown. London's leading index, the FTSE-100, has returned 4% this year, the Dow Jones Europe gained 6% and France's CAC-40 did much of nothing. The leading Swiss index lost 3% and Sweden's fell 6%. At least Germany stood out from pack, with a 21% leap this year.

It was not a good year for the Israeli companies listed there, most of which are traded on London's AIM, which lost 3%. Out of the 60 Israeli firms listed in Europe, investors lost money on 36. Sometimes, a lot of money. Only 23 companies achieved positive returns for shareholders.

The primary market was no bargain either. Israeli companies began haring for London in mid-2004. Money was splashing around and London welcomed all sorts of firms, but the trend changed in the middle of 2006 and investors started getting pickier.

Real estate companies, mainly ones focusing on eastern Europe, were hot property in 2006, and continued to captivate European investors in 2007 - for a while, at least. By July, a who's who of Israel's property sector had floated in London: Delek Global Real Estate, Africa Israel's AFI Development (which invests primarily in Russia), the Russian-Israeli real estate company RGI (second offering), Eli Papouchado's hotels business Park Plaza, and Yigal Zilkha's casino business Queenco Leisure International (QLI).

But in July, the world changed. It turned out that droves of Americans had taken out mortgages they couldn't afford, and as markets reeled, offerings ground to a halt. The ensuing credit crisis, combined with the shocking returns that most Israeli companies had delivered in 2007, were a powerful deterrent. Benny Steinmetz' mining company Coneco deferred its initial public offering, as did cosmetics maker Ahava. More recently, desalination company IDE Technologies shelved its plans to float, too.

Engineering group U. Dori did manage to float Ronson, which builds housing and office space in eastern Europe, but it wasn't in England: Uri Dori took it public in Poland, where it scored 42 million euros at a company valuation of 360 million euros. But it too brought no joy, losing 20% of its value since its IPO.

In fact, all these Israeli companies have lost ground since floating. The worst was Yitzhak Tshuva's Delek Global, whose shares have lost 50%. Second is Park Plaza, with returns of -37%; and third is QLI, which has returned -23%. To be fair, toward the year's end, the small-cap biopharmaceutical company Medgenics tapped Londoners for 3.3 million pounds, and it hasn't cost them any sleep or given them any gains. Moreover, turnover in its stock is low.

The year 2007 started with fond hopes for Israel's real estate stocks. Six such companies floated in 2006: Atlas Estates, Summit, Nanette Real Estate, Plaza Centers, MirLand and RGI, and excitement reached fever-pitch when Africa Israel's AFI and Tshuva's Delek Global hit the market.

Vanishing gains

First was Delek Global, which floated in April - with a whimper. The IPO did not go well. Demand did not flow like water, the company had to lower its share price and parent firm Delek Real Estate saw its capital gains from the flotation plummet from an anticipated NIS 1.2 billion down to NIS 60 million. Yes, you read that correctly.

It started badly and limped on. Liquidity is low and the company has lost half its value, due in part to its misadventure with Swiss company Jelmoli, which is suing after Delek reneged on a deal to buy a huge portfolio.

In May, Lev Leviev's Africa Israel floated AFI Development. In this case, demand did run strong. Too strong: Leviev succumbed to the temptation and upped the share price, which had been looking pretty bubbly anyway. Even at the remarkable company valuation of $1.4 billion, investors bit, but the results of the ill judgment were devastating. The stock started sinking on its very first day, and has lost 30% by now. As a direct result, Africa Israel's stock in Tel Aviv also took a hammering.

During 2007 the Africa Israel executives talked about floating another group firm, AFI Europe. It hasn't happened yet, and English investors may be leery of another Leviev story.

One large-cap that did well is the Gardiner family firm Cinema City, which floated a year ago in Poland and has returned 72% this year. But Engel Eastern Europe disappointed: It has lost half its value this year, and 34% since its IPO in mid-2005.

Yet there were some swans among the dogs, and one such is a tiny company from Ramat Hahayal, called iPoint-media, controlled by Tel Aviv-listed company Nisko. iPoint's software enables communications providers to supply video-based services through broadband.

iPoint-media floated in September 2006 and has risen 183% this year, though with major fluctuations en route. Today iPoint-media is worth $65 million.

Among the small-caps that stood out is cellphone-maker Telit, which posted a terrific rally after two horrible years. In fact, it rose 150% after its chief executive Oozi Cats and an Italian investment group bought the controlling interest from the Polar group. Yet seen from its IPO in March 2005, Telit stock is down 40%.

Telenovelas production smallcap Dori Media is another leaper, rising 115% this year. Among the worst of the smallcaps are Polar group company Nipson (-84%), Atlas Estates (-72%) and Medvision (-61%).

Looking at 13 Israeli real estate offerings in London from the last two years (including secondary offerings) shows unhappy results. Eight have lost money for investors. However, RGI, run by Boris Kuzinez, has done well, and so has Moti Zisser's Plaza Centers, returning 25% since its flotation in October 2006. This year it has risen 15%.

Then there's Emblaze, which had belonged to the flamboyant Eli Reifman. It lost 50% this year despite its takeover of Formula Systems.

After Nasdaq, London had been the next great hope for Israeli entrepreneurs. Could Poland be next? Kardan group company GTC chose to float in Warsaw and was followed by Cinema City, Plaza Centers and Ronson. This week the world learned that Yuli Ofer's company CEE, which engages in eastern European real estate, is moving to float in Warsaw, and Atlas and Nanette mean to dual-list there. The tough year of 2007 notwithstanding, Israel's entrepreneurs are an irrepressible lot.