Discovery at Tamar 1 Boosts Delek Group Asset Value by 22%

The net asset value of Yitzhak Tshuva's Delek Group has shot up by 22% to about NIS 4 billion.

From the start of the week, when the partners to the Tamar 1 offshore gas exploration shouted "Eureka!", the net asset value of Yitzhak Tshuva's Delek Group has shot up by 22% to about NIS 4 billion - says Leader Capital Market equity analyst Yoav Burgan, who calculated Delek Group's worth based on an NAV (net asset value) model.

This is good news for Tshuva. Just two weeks ago Clal Finance's equity research department applied the NAV model to Lev Leviev's company, Africa Israel Investments, and came up with a net asset value of zero.

Last week, TheMarker checked out the NAV of Nochi Dankner's IDB Holdings, with a negative result: the company's assets are currently worth NIS 2.5 billion than its liabilities. (IDB commented that the evaulation is wrong.)

One point that must be remembered, however, with respect to Tshuva's personal position is that his private holding company El-Ad was naturally not included in the Delek Group calculation, and El-Ad has some hefty debts because of its extensive real estate investments in North America.

That said, Tshuva could smile this week following the sharp rally in Delek Group's share price, which added close to a billion shekels to Burgan's model. Following the 40% jump in Delek Group's share price, the gap between the NAV model and Delek Group's market cap widened so much, that based on Burgan's model, at the end of trading on the Tel Aviv Stock Exchange on Monday Delek Group was trading at a 43% discount in comparison with the NAV model.

According to Burgan's model, the value of Delek Group's holdings, which include Delek Automotive, Hot Cable Communications Systems, Gadot Biochemicals, the Phoenix insurance and of course Delek Energy and Delek Drilling, amounts to about NIS 9 billion, offset by debts of about NIS 4.8 billion, not including administrative expenses.

Similar figures have been compiled by Psagot analysts Limor Gruber and Noam Pinko. Their NAV model also resulted in a NIS 9 billion figure for Delek Group's holdings, with debts of about NIS 4.8 billion and around NIS 200 million for other expenses, for an NAV of about NIS 4 billion, such that Delek Group's share is trading at a discount of 41% compared to the model.

The models used by Psagot and Leader show which companies contribute most to Delek Group's NAV. The top spot, even after the celebrations at Delek Drilling, is Delek Israel, which operates the Delek gas station chain, and accounts for 14%-15% of Delek Group's net worth. Next is Republic Companies Group, an American insurance company that contributes 12%-13.5% to Psagot's and Leader's calculations. Third and fourth place are occupied by Delek Automotive and Delek Energy, each of which represents about 11% of Delek Group's worth.

Both NAV models derive a discount of tens of percentage points for Delek Group, even after the sharp increases in the share's price in the last few days, prompting some analysts to issue Buy recommendations on Sunday. Before the current economic crisis analysts would not issue a Buy recommendation unless there was at least a 15% gap between a company's market value and the NAV model, but now the required gap is much more.

"These days there is no talk of Buy recommendations if a holding company is trading at a discount of less than 25%," said one analyst Monday, explaining that this was due to the impact of the capital market crisis on holding companies, which are usually highly leveraged and therefore much riskier. Hence the analysts look for significant share price growth potential before issuing Buy recommendations.