Bank Hapoalim is publishing a qualified buy recommendation for the Elite share, as a "long-term investment". The bank assesses that Elite is trading at 10.9%-18.3% lower than its economic value of $220-240 million. The bank estimates that, after a difficult 1995, Elite will revert to a profit of NIS 40 million and more in each of the next three years, not including capital gains on disposal of real estate.
In a previous evaluation of Elite, performed in December 1995, the economists of Bank Hapoalim were far more optimistic. In their assessment, Elite was to have wound up 1995 with a profit of NIS 31.5 million, whereas, in fact, it incurred a loss of NIS 6.6 million, while for the next four years, the average annual profit forecast was NIS 100 million.
The present evaluation is slightly higher than the previous one. The main reason for this is the advent of the Strauss family as principal shareholder (18.6% of voting power and 16.2% of capital), in Elite. The Strauss family's entry into partnership has heightened the likelihood of co-operation between Elite and an international foodstuffs company, since Strauss has experience in partnerships with foreign companies.
The partnership in Elite has brought about a change on the operating level and will also affect the personal plane. "The main problems faced by Elite, which deterred potential investors, are in process of being resolved. For a long time, the management of Elite was subject to instability, as general managers were replaced due to differences of opinion with the Chairman of the Board of Directors. It seems that now that the Strauss family has greater influence, the company can enjoy stability on the managerial level", Bank Hapoalim's economists determine.
"It would seem that in the long run", writes the bank's analyst, "the introduction of a strategic international partner will be a vital stage in Elite's continuing struggle to preserve its market share and become established as one of Israel's major foodstuffs companies".
The profit forecast states that the reorganisation of the firm's limping activity in West Europe, which included closing down one plant and negotiating the sale of another three, will result in a significant reduction of the group's sales, on the one hand, but also in a substantial improvement in Elite's gross profit margins on the other. At the same time, these changes are liable to result in write-offs and capital losses, reflected in the 1996 financial reports.
Elite intends, for the short term, to centre most of
its overseas activity in East Europe, in Poland and Romania. In Israel, the bank assesses, Elite will continue to concentrate on presently-existing activities, without going into anything new, while the principal strategy in coffee (over 60% of the market) and sweetmeats (over 75%) will be to preserve Elite's market share and leading position. In the field of savoury snacks (20%), the strategy will be more aggressive, with a view to increasing market share.