March 6, 2020

The Wisdom of Hindsight. Depending on the Subsidiaries: How Do the Holding Companies Fair on theStock Market?

The number of holding companies has steadily declined over the past decade, but some still continue to exist and even thrive ■ Elco's share has skyrocketed 400% in five years ■ However, DSC and Fuel Group are plunging

Eran Azran

The number of holding companies has steadily declined over the past decade, but some still continue to exist and even thrive. Holding companies have no independent activity and operate through subsidiaries. Many holding companies ran into difficulties after the 2008–2009 crisis, which resulted, for some, in debt or bankruptcy settlements, and others disappeared from the stock exchange due to the Centralization Law, which forced the pyramids to shrink.

Elco: a jump of 106%.  Elco is a holding company controlled by Mikey and Danny Salkind. The two inherited the company from their father, Gershon Salkind, who passed away three years ago. Elco, which trades at a value of approximately NIS 3.5 billion, holds three major subsidiaries: Electra Ltd., one  of the largest construction contractors in Israel; Electra Real Estate, which operates in the US housing market and “Electra Consumer Products, which engages in the air conditioning market and controls Golan Telecom. Elco has a prosperous business, maintains low leverage and makes extensive investments. Its share has soared by about 400% in five years.

DSC:  a 42% drop. Discount Investments (DSC) is one of the oldest holding companies in Israel. The company, which is traded at a value of about NIS 920 million, was previously controlled by Nochi Dankner and is currently controlled by Eduardo Elstein. DSC controls the subsidiaries Cellcom, Property and Building Corporation, and Elron; it also holds a quarter of Shufersal's shares, and 40% of the citrus fruit company Mehadrin. DSC bears a heavy financial debt of NIS 6 billion, which it is required to repay from the profits of the subsidiaries. The company's bonds are trading at relatively high yields of 5% - 6.7%, which indicates the risk that the market attributes to them.

Delek:  a 55% drop.  Delek is an energy holding company. The company, controlled by Yitzhak Tshuva, trades at a value of about NIS 3.7 billion. In recent years, Delek has implemented a strategic plan to focus on oil and gas assets. The group currently has two major assets: Ithaca - a oil drilling operator in the North Sea, which it acquired in 2019; and Delek Drilling, which holds the Tamar and Leviathan reservoirs in Israel. Over the past year, Delek's financial debt has swelled to NIS 9.5 billion (following the acquisition of Ithaca). Recent yields on its bonds have risen to 7% - 8%, due to the fall in oil prices.

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