Who's Responsible for the Decline at Granite Hacarmel?

Three years after Yossi Singer predicted huge success for the holding company, it's clear his forecast missed the mark. Now Singer is blaming the market for not pricing Granite appropriately.

When Granite Hacarmel Investments was delisted from the Tel Aviv Stock Exchange three months ago and taken private by its parent, Azrieli Group, it was trading at a company value of NIS 810 million, well below the NIS 1.1 billion for which Azrieli bought control six years ago. It was worth NIS 1.3 billion when Yossi Singer, founding partner at the financial consulting firm Giza Singer Even, was called on in 2008 to manage the company.

Granite Hacarmel is a holding company operating mainly in the fields of energy, water and construction finishing, through companies like Sonol, Tambour, Super Gas and GES. In an interview with TheMarker in September 2009 Singer stated: "Anyone claiming it hasn't been a success is mistaken. It's true that a lot more needs to be done, but I am completely convinced that within several years Granite will become of the market's most interesting investment companies. Even this corner of the huge mesh of businesses comprising the Azrieli Group will become an asset to take pride in, and in terms of providing value to the owners."

Now, three years later, it seems his forecast missed the mark.

In the first nine months of 2012 Granite saw a vast improvement in the operating profitability of its subsidiaries and increased its net income by 58% over the previous year, to NIS 77 million, but the stock market remained unimpressed. Singer insists the market was at fault in not pricing Granite appropriately and is more enamored with speculative investments.

TheMarker: It would seem the market should differentiate between worthy and unworthy companies, so what happened?

Singer: "The stock market showed a lack of enthusiasm because it bundled Granite together with all the other holding companies, a sector shunned by the capital market."

That shouldn't seem so difficult.

"True, but our feeling is that the analysts miscalculated in our case. Perhaps it's the complex accounting involved in desalinization, or other reasons, but if at certain stages of 2012 - an excellent year for Granite - the market priced the company at NIS 500 million, compared with its NIS 800 million in equity, then I have nothing to add."

Perhaps you and your staff failed in marketing the company to the capital market?

"We improved. We removed a large number of investments that aren't our core activities, like operations in the automotive field and real estate in Serbia. Right now Granite isn't leveraged on its unconsolidated balance sheet and we don't have any problems recycling debt. On the contrary, there is demand to extend us credit, both from the banks and the capital market.

"So what it comes down to in the case of Granite and also Tambour is that if the capital market doesn't give a premium for being in the market and for being managed well, and doesn't give you the chance to raise money at a low cost, and you don't see any benefit from being public, but instead see that it's become a burden, then you need to do some thinking. We were lucky not to run into financial difficulties, and Azrieli's strategy is to be without partners, so it preferred making a buyout offer in order not to split the profits with the public."

When will we see a public offering of Sonol?

"An offering was never on the agenda. Sonol was in poor shape when the Azrieli Group acquired it. Its previous owners didn't allow it to keep up with the market because they didn't have the means or strategic vision. Azrieli Group promoted Sonol since buying Granite, and Sonol is now on an even level with the rest of the gasoline companies."

What is happening with Tambour?

"This is one of the sector's most successful companies and investments. The company has sales turnover of about NIS 800 million with NIS 300 million in equity. It produces profits of NIS 38 million and over 10% return on capital. Its trading turnover was a sad joke. Tambour is a good company that was delisted from the stock market because it had sparse trading volume. We can't affect the price on a macro level, but when trading turnover is similar to the amount spent on bar mitzvah presents you start asking questions and examining options."

What will happen now with Granite?

"Azrieli has one of the most interesting companies in the Israeli economy, and now they can manage it without being weighed down by the capital market and enjoy its enhancement of value alone. I am convinced that Azrieli will receive a higher price in the future for Granite. The owners didn't get enough support from the capital market. It was fortunate for us that the owners had enough money to buy the company out, whereas the other companies traded in the market and in a similar situation don't have this privilege."

Is Granite already up for sale, as was mentioned in the past?

"There is no fire sale here. If we do decide to sell, we will. Azrieli recently convened an investors' conference and when the group's CEO, Shlomo Sherf, was asked about the divestment strategy he named several non-core businesses. He mentioned Bank Leumi, Leumi Card and also Granite. In any case, Sherf said Azrieli probably won't sell the malls it owns in Israel."

How do you feel about the change?

"When I came to Granite I wasn't thinking about the length of my term, but I'm in a group where the average tenure of its managers is at least five years. In my eyes, four years isn't enough time for a manager in this business. As to what's in store, you need to ask yourself who your owners are and what the level of interest and challenge is in the company where you work. And all this needs to be compared with the alternatives. The answer in my case is Granite Hacarmel, since within the format of holding companies it has the most interesting portfolio, with companies busy improving themselves rather than dealing with leveraging or operational problems."

Daniel Bar-On