At Kibbutz Yizre’el, people seem to like to recall the stormy meeting of the kibbutz members in February 2012, when they voted against the sale of control of the kibbutz factory that manufactures swimming pool cleaning robots, Maytronics (TASE: MTRN). The kibbutz had received a tempting offer for its shares in the factory from US competitor, Hayward. The offer was NIS 180 million, representing a premium of 30% over the market price of the shares at the time. Those in favor of accepting the offer were also concerned about the factory’s future in the face of an expected increased in competition.
Almost twelve years later, Kibbutz Yizre’el’s 56% stake in Maytronics is worth more than ten times Hayward’s offer, making the kibbutz one of Israel’s wealthiest. Along the way, in 2017 and 2020, the kibbutz did sell some of its Maytronics shares, for NIS 230 million, allowing a handsome distribution of profits to its members.
Maytronics’ success story has, however, been accompanied by a sour taste lately. After yielding a dream return to its investors, Maytronics’ stock has lost more than half its value since the peak of two years ago, following a deterioration in the market in which it operates. The company’s third quarter financials actually showed a loss, a rare event for it, the last such occurrence having been in the third quarter of 2008, when a global financial crisis broke out.
From a market cap of NIS 9 billion in 2021, Maytronics has fallen to a current market cap of NIS 4 billion. The value of Kibbutz Yizre’el’s stake has accordingly fallen from NIS 5 billion at the peak to NIS 2.2 billion today. That still gives a value of several million shekels on paper to each of the kibbutz members.
Summer came late
Maytronics develops, produces and sells robots for cleaning private and public swimming pools, and ancillary products (pool covers, pool safety products, and so on). The company’s business is based on exports: about 98% of its revenue derives from product sales and services overseas.
Maytronics is a world leader in its main business of robotic cleaners for private pools. It is estimated to hold about half the global market in this segment. It products are mainly distributed by external distributors.
The company makes most of its revenue and profit in the first half of the year, in advance of the start of use of private swimming pools in the summer. Its customers (mostly distributors) stock up in January-July.
Maytronics has been a favorite among Tel Aviv Stock Exchange investors for many years, as a manufacturing company with easily comprehensible financial statements, free of superfluous accountants’ conjuring tricks. In late 2021, then CEO Eyal Treiber was replaced by Sharon Goldenberg, who until then had served as CFO.
So what happened to the stock that enriched not just the kibbutz members, but also many experienced investors for which it yielded excellent returns?
"What has happened to Maytronics in the past two years is mainly the dissipation of the Covid effect," says IBI investment manager Bernard Manor. "In 2020 and 2021, the pandemic kept many people at home. There was an explosion in demand for anything to do with the Internet or with upgrading the home, or swimming pool maintenance. Maytronics enjoyed heightened demand, in the same way as Netflix was bursting with new subscribers, and accordingly reported very strong results."
Indeed, from NIS 846 million revenue in 2019, the company broke the NIS 1 billion revenue barrier in 2020, and sustained the growth into 2021, when revenue soared to NIS 1.4 billion. Operating profit almost doubled, from NIS 145 million in 2019 to NIS 277 million in 2021. In 2022, the double-digit sales growth continued, but profitability declined.
The financials published by Maytronics last week show not just a near halt in sales growth, but a profit for the first nine months amounting to just a third of the profit for the corresponding period of 2022, at NIS 172 million.
As mentioned, in the third quarter Maytronics made a loss, of NIS 700,000, which compares with a profit of NIS 35 million in the corresponding quarter of 2022. The company says that the swimming pool market has been affected by several main factors in 2023. First of all, there has been an adjustment of stocks in the distribution chain, with distributors and dealers reducing surplus stocks bought in previous periods.
Secondly, the distribution chain has changed its buying pattern, switching to smaller, more frequent orders, to cope with the high interest rate environment, which is affecting the level and characteristics of consumption. Lastly, extreme weather conditions, mainly in the US but also in Europe, led to a late start in the use of swimming pools in the northern hemisphere.
Improvement in the fourth quarter?
"2023 was a tricky year for Maytronics," a response to "Globes" on behalf of CEO Goldenberg stated. "It started with very high stock levels in the supply chain and a change in procurement patterns on the part of our distributors. This was both because they had accumulated large stocks, and because the interest rate environment had risen." On the effect of the weather, the response says, "Our season started very late, in late June-early July in Europe and the US, and in fact was very short." Nevertheless, Maytronics’ management indicated in a call with investors that the fourth quarter results could herald an improvement.
"Maytronics and the pool equipment industry have been through a tough year," Leader Capital Markets analyst Dina Korshunov agrees. "But," she adds, "looking at its competitor companies, it’s doing better, thanks to the nature of its activity and its low exposure to the construction of new pools." Korshunov too attributes the deterioration in the company’s results to the end of the effect of the Covid pandemic, which left distributors with surplus stocks, and adds that end consumers are also currently weaker.
She is, however, optimistic about the fourth quarter. "Procurement of robots in advance of next season seems certain to be higher, and performance in the southern hemisphere also sounds positive."
Published by Globes, Israel business news - en.globes.co.il - on December 3, 2023.
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