Plastics manufacturer Palram Industries (TASE: PLRM), owned by Kibbutz Ramat Yohanan near Haifa, has become Israel’s most valuable kibbutz company, with a market cap of NIS 2.2 billion. In 2024 the company’s share price rose by 132% making it the second best performing stock on the Tel Aviv 125 Index after Beit Shemesh Engines (TASE: BSEL), controlled by FIMI Opportunity Funds, which rose 153%. El Al was in third place with a rise of 130%.
Several kibbutz industries companies are traded on the Tel Aviv Stock Exchange (TASE). By far most valuable of them until it was overtaken by Palram over the past year was Maytronics (TASE: MTRN), based on Kibbutz Yizrael, which manufactures robots for cleaning swimming pools. Maytronics, which once reached a market cap of over NIS 9 billion, has suffered in recent years from negative momentum and its share price has plunged 75%, due to reduced forecasts and a fall in revenue and profits. Maytronics currently has a market cap of NIS 1.1 billion, down almost 90% from its peak in 2021.
Kibbutz Yizrael has a 56% stake in Maytronics worth NIS 616 million, while Kibbutz Ramat Yohanan holds 65% of Palram, worth NIS 1.4 billion. Two other kibbutz companies have overtaken Maytronics over the past year in terms of their value - plastics company Plasson (TASE: PLSN), based on Kibbutz Maagan Michael, which manufactures pipe connection accessories, sanitary equipment and chicken coop products, has a market cap of NIS 1.8 billion, and Arad (TASE: ARAD), from Kibbutz Dalia, which manufactures water meter systems, has a market cap of NIS 1.3 billion.
The fifth most valuable TASE-traded kibbutz company is Kafrit Industries (TASE: KAFR), which manufactures compounds for the plastics industry at Kibbutz Kfar Aza and has a market cap of NIS 738 million, up 105% in 2024, despite being hit hard on October 7.
But back to Palram, the most valuable kibbutz company, which manufactures a range of products including thermoplastic boards, DIY assembly products for homes like greenhouses, storage sheds, pergolas and more), as well as sales and presentation stands.
Its main market segments include the home environment, signage and advertising, industrial construction, public buildings (where thermoplastic panels are used for lighting), agricultural buildings such as barns and chicken coops, and the industrial processing sector. Palram's stock has recorded a return of almost 300% in the last two years, after a negative return in 2022.
The company was founded in Kibbutz Ramat Yohanan, east of Haifa Bay, and according to its website, it "began its journey as a modest company, and has grown to become a leading company in the industry and an international corporation with global operations."
The war has "even contributed"
In the first nine months of 2024, Palram reported revenue of over NIS 1.4 billion, up 9.7% from the corresponding period of 2023. The company's sales are divided into the US market - with 39% of total sales, Europe with 36% and Israel and the rest of the world with 25%. In the first three quarters, there was sharp 45% growth in sales to Israel and the rest of the world, while growth in the US was 7% and there was a decrease of 4% in sales to Europe.
Palram's operating profitability jumped 16.6% during this period compared with 11.1% in the same period of 2023, and net profit was NIS 185 million, up 68% from the corresponding period of 2023 (and higher than full-year 2023).
A key factor affecting Palram's results is the raw materials component (mainly polycarbonates and PVC). The company notes that this is the most significant component of the cost of sales, and that it is unable to estimate the prices of raw materials in the future. As of the third quarter, the company showed an improvement in gross and operating profitability thanks to an improvement in the margins between selling prices and the price of raw materials, with material prices "continuing to be at their relatively low level from a multi-year perspective."
According to Palram’s financial reports, the ongoing war has no impact on its activities, which are continuing both in Israel and abroad, with no material difficulties in operational and functional continuity. "It should be noted that in Israel the company has also experienced increased demand for its products for the home environment, as consumers invest in their homes due to their presence there during this tense period," the reports state.
Palram will also be able to benefit from the increase in the scale of renovations after residents in the north return to their homes.
On the effects of interest rates in the economy and inflation, the company notes that since it has no loans, changes in interest rates in the economy have no effect on its operations, while inflation has no material effect, except on sales in the home environment sector, due to a certain decrease in investments.
Kibbutz rewarded by Palram
Palram is a generous dividend payer, and as of September 30 2024, these amounted to NIS 90 million, after a distribution of NIS 40 million in 2023, with most of the distribution flowing into the coffers of Kibbutz Ramat Yohanan.
In addition, the northern kibbutz and Palram have a series of agreements to provide various services, which generate more than NIS 50 million in revenue for Ramat Yohanan annually. The most important of these is an agreement to provide personnel and office services. The kibbutz provides Palram with the services of 60 "kibbutz employees" (the company also has another 673 salaried employees who are not from the kibbutz). The agreement was approved again at a meeting last summer, and it was decided that the annual consideration for the kibbutz is NIS 29.9 million (about NIS 500,000 annually for a kibbutz member who works at Palram).
For the office services agreement (as approved at the meeting in early 2023), the company paid the kibbutz NIS 13.8 million in 2023, and for the services of the CEO and chairman, the payments were about NIS 3.5 million and NIS 2.3 million respectively. In addition, the kibbutz leases land and a factory to a company under its control that is used for production activities. In an agreement that was also extended last summer, the rent Palram pays to the kibbutz increased from NIS 496,000 to 566,000 per month.
Published by Globes, Israel business news - en.globes.co.il - on January 7, 2025.
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