Ofek Securities' Recommended Share Portfolio

This week's recommendation comes from Yaron Pitaro, economic department manager at Ofek, of the Bank Leumi Group.

Chemicals

Israel Chemicals

Israel Chemicals primarily owns companies in the fertilizers and chemicals manufacturing field, most of them based on utilization of unique natural resources found at the Dead Sea.

Main points:

• The company continues to grow, despite the fear of a slowdown in demand for chemicals, as a result of the currency crisis in south east Asia. More than 90% of the group's sales are designated for export and provide mostly dollar revenues. The strengthening of the dollar against the Shekel is likely to improve the group's profits.

• Magnesium project: The magnesium plant reached over 40% of scheduled manufacturing capacity. Despite the delays in its operation, the magnesium project is expected to contribute to the group's profitability starting in '99.

Share quotation when recommended: 421

Market value to equity: 1.75

1997 yield: 75.7%

Agan

Agan is engaged in development, manufacture and marketing of herbicides and synthetic fragrance materials. 90% of its sales are designated for export.

Main points:

• Entry of a new line of unique products into the market, which will improve gross and operational profitability, and increase net profits in '98.

• Agan, which is undergoing structural changes, becoming an international company with its central base in Israel, is expected to show high growth levels in '98, mainly due to activities in the South American market.

Share quotation when recommended: 9340

Market value to equity: 2.46

1997 yield: 76.8%

Mortgage Banks and Financial Institutions

Shilton

The company is a financial institution whose main activity lies in providing credit to local authorities and municipal institutions, and receiving monetary deposits from them.

Main points:

• The company is expected to continue to show high yields on equity and therefore the low p/e ratio in which the share is traded, is undervalued. A particularly profitable Q4 is expected.

• We estimate that the company will continue with its expansion strategy, while retaining its provisions level, in order to reduce the damage to net profits. Accordingly, the rate of increase in the company's credit portfolio in '97 and '98 is expected to be lower than in '96. However, an increased demand in '98 is expected, due to the upcoming municipal elections this year.

  We estimate that there will be a 7% increase in net profit in '97, despite the increase in provisions for doubtful debts, as demanded in the Bank of Israel's new regulations. This is due to the write-off of provisions during the first half, following clarifications received from the Bank of Israel regarding the use of insignificant surplus capital.

Share quotation when recommended: 15700

Market value to equity:0.94

1997 yield: 55.2%

Mishkan

This is a mortgage bank which provides mortgages for the financing of homes and building land.

Main points:

• The bank is traded on low p/e ratio, despite expected high yields on equity during the next few years. Mishkan is expected to achieve the highest return in its field - 15%, yet is traded on a low future p/e ratio. It is therefore the most recommended in its sector.

• Bank results for Q3 are identical to forecasts. This is the eighth non-disappointing consecutive quarter.

  An 18% increase in net profits is expected for '97, including a 14% increase in Q4. If expectations are realized, '97 will be the fourth consecutive year the bank shows an increase in net profit above 10%. The increase in profits for '98 is expected to be relatively moderate, 9%, after allowing for index adjustments.

• The forecasts do not include possible considerable declines in revenues from life insurance, due to the uncertainty surrounding the arrangements being currently negotiated.

Share quotation when recommended: 52000

Market value to equity:0.95

1997 yield: 41.4%

Services

Bezeq

The company provides communications services and infrastructure in Israel.

Main points:

• The large gap between its economic value and the company's value. The effect of international calls is still not reflected in the company's financial reports. In fact, the process leading to equality among the three providers has not yet been completed, and it is expected to continue another two years. Until then, a continued depreciation in Bezeq's profitability is expected to continue in this field.

• Pele-Phone continues to show satisfactory results. The company expects to acquire new technology in '98, and so will post relatively high investments.

  Results of the tender for the third cellular phone provider stress the high profitability the participants in the tender envisage. However, the third provider will affect Cellcom and Pele-Phone results.

Share quotation when recommended: 881

Market value to equity:1.12

1997 yield:27.0%

Real Estate

Ocif

Ocif engages in the setting up of real estate projects in Israel and income producing realty investments in Britian.

Main points:

• Improvement in profitability and provisions expected on land in Tel Mond this year, contribute to the attractiveness of investment in this share.

  The Q3 report showed a real depreciation in the pound sterling, which led to a decrease in revenues from rentals. There was also an increase in financing expenses.

• In Q4 of '97, the company will post a gross profit of NIS 35 million from the sale of its holdings in Givat Amal Lalrov (taxation is expected to be slight). The price of the deal stood as expected. In addition, profits will be posted from the purchase of another building in Britain.

  The company reports offers to purchase land in the Shaar Ha'ir project, for $ 15 million, $11.25 of which is Ocif's share. Prices are $2,700 - $3,000 per sq.m.

• We estimate that following the sale of Givat Amal, Ocif will be able to improve the rate of sales for land in the company's major project today - Shaar Ha'ir, in Ramat Gan.

• We estimate that land in Tel Mond will be released for building. The expected profit is estimated to amount to NIS 15 million.

Share quotation when recommended: 7360

Market value to equity:0.82

1997 yield:18.5%

Bayside

This entrepreneurial company is engaged in the planning, setting up, maintenance and running of industrial zones and warehousing, high-tech industrial parks, offices and commercial centers. It also sets up residential building neighbourhoods.

Main points:

• At the current economic under valuation in which the company is traded, and in consideration of is business soundness and expected continuing improvement in its results, our recommendation is "buy".

• Bayside cautiously entered into new investments in rental space, some of them including closed contractual agreements in advance with customers. At 30.6.97, the company had 305,000 sq.m. rental space directly, with 94% occupancy, leased to hundreds of businesses. Together with its subsidiaries and affiliated companies, rental space amounts to 425,000 sq.m.

  The company is engaged in setting up 110,000 sq.m. of industrial and commercial buildings, offices and parking lots and accordingly posts increases in income from rentals.

• A substantial component in the economic value of the company is its existing income producing assets portfolio. A severe economic recession and bankruptcies are also liable to harm the portfolio, which in recent years was characterized by its stability, profitability and consequently the company's economic value.

Share quotation when recommended: 39000

Market value to equity:1.17

1997 yield:47.0%

Electronics

Clal Electronics

A holding company engaged in setting up, acquiring and developing high-tech companies, especially in the electronics field.

Main points:

• Varied portfolio combination with high discount.

• During the current quarter, the company sold its holdings in Mercury, and invested in AGA Israel. Market value of Clal Electronics holdings in ECI represents 105% of its market value.

• Clal Electronics is traded at a high discount. The main reason for this is the gap between ECI's market value and its economic value.

• ECI has sales throughout the world. The company depends on a family of products in different fields, providing safety in its diversity to investors. 19% of the company's revenues are from sales to Asia and the Pacific.

  In the worst case, in which we assumed a 50% decline in sales to the Pacific/Asia, we still arrived at an EPS of $1.74 in '98.

  However, Since the setting up of industrial infrastructure in China is considered highest priority, while in the Philippines the equipment purchased is designated for the updating of existing infrastructures, the worst case scenario does not appear likely.

Share quotation when recommended: 44500

Market value to equity:1.39

1997 yield:72.0%

Electra

The company concentrates in the electronic-mechanical field (central air-conditioning, elevators and escalators, sanitation systems and automobile air-conditioners). The company has recently entered the field of income producing real estate.

Main points:

• An improvement in profitability is expected in the next few quarters.

• The company has an orders backlog of NIS 1,150 million, spread over '98 and '99, NIS 200 million per quarter.

• The company has a substantial cash surplus which enables it to take advantage of business opportunities.

Share quotation when recommended: 13900

Market value to equity:1.82

1997 yield:40.5%

Apcon

The company operates in the following areas: installation of automation and control systems for industry; air-conditioning control systems; fire detection and extinguishing systems;and security systems.

Main points:

• The results of activities indicate growth will continue and good results are expected for the fourth quarter.

• Due to the raising of capital in August the company will show financing income instead of financing expenses.

• The company continues to show improved results, with the rate of growth being in-line with the program presented by the company at the time of the issuance.

• The company holds a cash balance of NIS 34 million, mainly as a result of the issue,1 which realized a net NIS 30.8 million.

• There are orders of NIS 62 million on the company's books as at end October.

Share quote when recommended: 882

Market Value to Equity: 2.03

1997 Yield : 14.3%

COMPUTERS

Liraz

The company serves as a systems integrator in the area of software in Israel, and abroad it sells its products and services in the middleware sector through Level 8 Systems.

Main points:

• In the light of improved results, the company's economic value is higher than its market value. The fourth quarter is expected to show good results.

• Q3 results indicate improvement in the results of its activities, and in the activities of Level 8, and of Yaana Systems.

• There was a significant improvement in gross profit and operating profit, partly a result of pricing changes by Level 8, and partly due to greater efficiency at Liraz, and the move to projects with greater profit margins.

• The company has a net cash balance of NIS 15 million, less debentures. Since the debentures will become shares, the cash surplus upon their conversion will be some NIS 40 million.

• The company is traded at a heavy discount in relation to the value of its holdings and its operations.

Share quote when recommended: 3370

Market Value to Equity: 2.43

1997 Yield : 159.4%

COMMERCIAL BANKS

First International Bank of Israel

A commercial bank offering a full range of banking services.

Main points: