Clal Finances Recommends Investment in Castro

And Meitav smiles upon Fox, gives Buy rating

Probably by coincidence, two investment banks published opinions on Israel's fashion sector. Clal Finance Batucha gave fashion house Castro (TASE: CAST) an Outperform rating and 12-month price target of NIS 95, which is 15% above its level on the Tel Aviv Stock Exchange. And, Meitav looked at Fox-Wizel (TASE: FOX), which received a Buy investment rating and price target of NIS 42, which is 20% above its current level on the stock exchange.

Clal Finance analyst Yisca Erez believes Castro has just about exhausted its possibilities in the local market. Its pace of opening new stores has been slowing. Its domestic operations aren't likely to grow by more than 3% or 4%, nor does she see its new chain, Diva, of fashion accessories, beefing up sales much, though it will operate at higher margins and lift profit.

Castro's real potential lies outside Israel, where it means to open 90 double stores (men/women) by the end of 2009, mostly in Germany, Switzerland and Russia. The first two have high buying power and the last, a rapidly growing retail market. Erez does not believe Castro will expand beyond these target countries for several years, but will rather devote its energies to establishing its business in them.

She believes the probability that Castro's franchise model will succeed in international markets, and contribute to the company's growth, is greater than the inherent risks.

The company's affiliation with powerful, knowledgeable and financially robust elements in the foreign markets creates an opportunity for Castro to expand in the international markets, at relatively low risk.

Erez predicts that Castro will present NIS 411 million revenues for 2005, of which NIS 120 million will be in the last quarter, and earn NIS 29 million, of which NIS 9 million will be in the fourth quarter.

Castro stock over a year

Moving onto Fox, analyst Shy Yizchaky believes presents an interesting combination of value (expected dividend yield of 6%) and growth potential at home (through acquisitions) and abroad. He believes 2006 will be the test of its international aspirations: entry into new markets such as Italy and China, for example.

The Meitav analyst thinks 2006 will be a good year for Fox, with 7% to 8% revenue growth to around NIS 466 million, on which it should earn NIS 36 million.

Castro's market capitalization is NIS 464 million, at NIS 83 per share. It rose 65% in 2005.

Fox's market capitalization has lost 7% this year to NIS 382 million.