Difficult days are passing by Isracard, the largest credit card company in Israel. They started last month with the girls signing a new operating agreement with Bank Hapoalim. The new agreement will increase by approximately NIS 200 million the amount transferred by the company every year for the operation of its credit cards issued by the bank, and will harm its profits. In response, Isracard’s shares fell by more than 14%, and the company’s value dropped to approximately NIS 2 billion.
A few days later, the Ministry of Finance decided to also allow the other two credit card companies – Max and Kal – to benefit from the settlement profits of the premium brand American Express, which until now only Isracard has enjoyed, with revenues of tens of millions of shekels every year.
in the financial statements for the second quarter that it published on Thursday Isracard , it refers in detail to the issue of transferring the funds to Bank Hapoalim. The agreement with the bank, which controlled the company in the past, will be in effect for a period of eight years, starting last April, and Vishrachart has already recorded an increase of about 47 million shekels in the amount of payments from the company’s receipts for issue operations in the second quarter of this year. This amount will even increase to approximately NIS 50 million every quarter, in accordance with the scope of the activity.
In total, Isracard transferred a total of NIS 123 million to the banks for operations in the second quarter, an 89% jump compared to NIS 65 million in the corresponding quarter last year. For comparison, Cal, which published its quarterly reports on Wednesday, transfers NIS 86 million to the banks, a 13.5% increase compared to the same period last year.
A 55% decrease in profit excluding a one-time expense
The significant increase in the transfer of funds to the banks is one of the main reasons why Israchart ended the second quarter of 2022 with a net profit of NIS 32 million, and excluding one-time expenses, the profit was about NIS 51 million. This compares to a net profit of approximately NIS 113 million in the corresponding quarter last year. This is a decrease of almost 72% in the reported profit and of 55% in the profit neutralizing a one-time expense, which results, beyond the transfer of funds to the banks, also from the recognition of a one-time expense in the amount of approximately NIS 25 million in the quarter due to an increase in the provision for VAT assessments for previous years.
Despite this, CEO Ran Oz is optimistic. “Even after the difficult situation caused by the additional expense, we are showing a profit of NIS 51 million (excluding one-time expenses, R. F.), which shows the strength of the company and its durability.” Oz said in a conversation with Globes, in which he also referred for the first time to the agreement with Bank Hapoalim.
The stock dropped significantly, did you see the impact of the new agreement with Bank Hapoalim?
“We looked more at the renewal of the agreement and it was important to strengthen the customer base, just as we did with the extension of the agreements with the strong customer clubs Ashmorat, Hot and Lifestyle. They are the main part of the customer base, and they are guaranteed to us for many years to come.
“In each of the agreements we held negotiations and did the best we could, using the advantages and added values we bring to the table. The strong foundation will help us take Isracard in the long term to the right place and lead the market, and the new prices (increase from 0.17% of Hapoalim’s issuer’s turnover to 0.29%, R.F.), express the appropriate conditions in the market.”
Do you think the declines in the value of the stock already embody the total addition to Bank Hapoalim?
“That should be asked of the investors. My job is to manage the company and bring results, and their job is to make valuations and decide how much the stock is worth. However, we are convinced that as long as we continue on track, and implement our strategy – and we are already seeing results in the second quarter – we will know how to produce Beautiful results in the years to come. Usually, when a company consistently shows good results and shows growth, this is reflected in its value.”
This week, an analyst review was published in Globes, in which Eyal Debi, director of equity research at Leumi Capital Markets, does not currently recommend buying Israchart shares, until the company shows consistent double-digit growth for at least three consecutive quarters.
What do you answer to the investors who sold Isracard shares and to the analysts?
“It is always true that the burden of proof is on us as the management, who must generate growth and take care of profitability. We have built a strategy and a work plan that will lead to that, and we will slowly prove that we are on the right path. The results in the quarter are starting to show this, and those who have patience will see results in the coming quarters as well.”
Cal overtook Isracard in profitability
Along with the increase in payments to the banks, which hurt the company’s profitability, Bisrachart can draw encouragement from the increase in revenues in the second quarter of 2022, which grew by about 13% to about NIS 639 million. Revenues from credit card operations increased in the quarter by approximately 17% to approximately NIS 534 million, in light of a growth of approximately 13% in transaction turnover, which amounted to approximately NIS 51.6 billion in the quarter.
as a god, which as mentioned also published reports this week (Max will publish its reports next week), presented a transaction turnover of 37 billion shekels (a jump of about 18%), and revenues of 615 million shekels (an increase of 26.5%). These led to the fact that the profit of Kal, which is controlled by Discount and International Bank, was NIS 81 million, NIS 30 million more than Isracard’s net profit, even excluding the one-time expense, and this in a company whose credit card transaction turnover is almost 30% lower.
“The credit will compensate for the change in income from the issuance and clearance”
Another source of optimism for Israchart is an increase of about 10% in consumer credit compared to the corresponding quarter last year, to NIS 4.29 billion, and of 32% in commercial credit, to NIS 1.2 billion.
In the field of credit, Isracard is smaller than the two competitors. Cal, for example, increased consumer credit balances by about 22% compared to the corresponding period last year, and they stand at NIS 6.4 billion, while commercial credit stands at NIS 1.1 billion.
What is your goal for credit growth?
“We have not officially presented a target, but we are already presenting a double-digit growth rate at the annual level, and the goal is to continue to grow nicely in the coming years as well.”
To what extent can growth in credit compensate for loss of income as a result of the new agreement with Hapoalim?
“Commercial and consumer credit together are the engines of our growth, and we need them to continue to grow. Over time, they will compensate and even more so for the change in income from issuance and clearing.”