Even at the peak of the Corona period, when the public shut themselves in their homes and many businesses were shut down, there were those who continued to work at full speed. Among these are the companies operating in the fields of infrastructure, which were defined as essential for the functioning of the economy, and which continued to drive trucks and concrete mixers, are taking advantage of the days of the epidemic to promote projects. Shortening times in the big projects, whether it is the construction of office and apartment towers or the paving of roads, means big money for those companies.
This money can be clearly seen in the reports published by the four largest companies in the infrastructure industry, which are all traded on the local stock exchange and are included in its flagship index, Tel Aviv 35. The Ashstrom Group, Shapir Engineering, Electra and Shikon Vabinoi recently concluded a particularly strong half year, following several years of boom This is against the background of the growing need to expand and establish infrastructure in the economy, in view of the increase in the population in Israel.
The numbers speak for themselves: the combined revenues of the four giant companies last year amounted to NIS 23.5 billion, and the first half of the year was concluded with a similar rate of NIS 12.9 billion. The net profit they generate on the bottom line last year was NIS 1.9 billion, and in the second half of 2022 the pace is similar – an aggregate profit of close to a billion NIS.
In the last three years, the shares of these four companies have starred and provided a phenomenal return: the Ashstrom Group’s share jumped by 178%, Shapir Engineering by 112%, Electra by 102% and Shikon and Binui by 34% “only”. All four of these stocks “beat” the Tel Aviv 35 index, which recorded a return of 29% in the same period of time.
Kiryat Hamodiin: The franchise will end in 2047
At the same time, they are expanding their fields of activity through acquisitions and alongside the traditional businesses of projects in the fields of infrastructure, industry, franchising and real estate, they are sending arms to tangential and synergistic activities, such as public transportation, sheltered housing, security and more.
Evidence of mega-projects where infrastructure giants can be found was given this week: Shikun and Binui completed the financial closure of the IDF’s Kiryat Hamodiin project in the Negev (Lykia Junction), which was awarded a concession for its construction and operation in July 2020. It is about the establishment of a campus that will house approximately 12 thousand soldiers and officers from the various intelligence corps units, including the cyber and technology field.
The entities leveraging the project, a syndicate in which Discount Bank, the Harel Group and others are partners, will hand over a check of 4.2 billion shekels to fund it, when the settlement of the village is expected to be completed in six years. The concession period of Shikun and Binui is expected to end in 2047. This is one of several mega projects in the field of infrastructure, which are reflected in the growing backlog of the giants of the industry, which as of the end of June amounts to more than NIS 60 billion – close to the annual budget of the Ministry of Education, which is the highest Of the government ministries. This is a backlog of works that will support the companies’ business results for many years to come.
“The infrastructure sector is only expected to continue to grow rapidly in the coming years,” says one of the industry executives. “The public is used to perceiving the infrastructure sector as it used to be ‘retail tenders’, meaning tenders worth billions of shekels intended for the construction of new roads. But the field will grow by tens of billions of shekels in the coming years, also because the state needs to build more public buildings – kindergartens, schools, government offices and hospitals – all of these are infrastructure.”
“The economy grew and the demographics changed”
According to the same source, “The economy is growing and people don’t even understand how much the demographics have changed. The birth rate of a secular family has jumped from 2.3 to 3.3 children on average in recent years. This is a huge change in magnitude. There has also been a significant increase, not to mention an increase, from Russia in the last year , due to the war against Ukraine. And by the way, there is an increase of people with financial resources unlike in the past. The economy is growing and therefore the infrastructure sector will continue to ‘star’.”
A review of the financial statements of the four largest in the infrastructure industry shows exceptional profitability displayed by the Ashstrom group, which is under the control of the founding families (Giron, Nussbaum, Mashorer, Rubin and Lipshitz). The company led by CEO Gil Giron and chairman Rami Nussbaum concluded a strong quarter in which the effect of the activity in the real estate sector on the company’s results was evident.
Ashstrom has the activity of initiating residential real estate through its subsidiary company Ashdar as well as establishing and managing Maniv real estate (Ashstrom Properties) and, among other things, the group is responsible for the construction of a pair of residential towers on Da Vinci Street in Tel Aviv.
The surge in housing prices helped Ashstrom to double real estate valuations in the quarter to NIS 203 million, and was a significant factor in its quarterly net profit jumping by 80% to NIS 293 million. In the summary of the first half, revenues grew by 12% to approximately NIS 2.5 billion , while the net profit was NIS 433 million, the highest among the companies in the industry. This is after last year’s summary Ashstrom recorded an extraordinary profit of more than NIS 1.2 billion, among other things after it sold back to the state the light rail in Jerusalem and recorded an extraordinary one-time profit of Half a billion shekels.
Ashstrom, the financial reports show, has recently been expanding into another field that has been gaining momentum in recent years – green energy. The company reported earlier this year that it entered with an investment partner in a project to establish a facility to produce 1.5 gigawatts of electricity in the US, with a total investment of 1.5 billion dollars.
Shapir Engineering: The company with the highest value in the industry
The company with the highest value in the infrastructure industry is Shapir Engineering, controlled by the Shapira brothers, which trades at a value of more than NIS 11 billion (compared to NIS 8.5 billion for Ashstrom, 8.1 billion for Electra and 6.8 billion for Shikon and Binui).
In the second quarter, Shapir Engineering shows an erosion in profitability due to the timing of the completion of real estate projects, but on the other hand, it enjoyed a jump in revenues in the industrial sector (quarries it owns) due to the increase in the price of raw materials.
Shapir, which this week completed the financial closing for the purchase of the desalination plant in Ashdod from Mekorot for NIS 870 million, reported an 18% drop in its quarterly net profit to NIS 82.4 million, while in the first half of the year its revenues rose by 7% to almost NIS 2 billion and the net profit decreased -3.5% to NIS 170 million.
Shikun Vabinui, the oldest among the companies, has a diversified activity that includes entrepreneurial residential construction, alongside infrastructure works in Israel and abroad. The company’s energy arm, which owns solar fields alongside conventional power plants powered by natural gas, was issued earlier this month on the Tel Aviv Stock Exchange.
Shikhon Vabinui concluded the first half of 2022 with an 8% increase in revenues to 3.3 billion shekels, with the bottom line the company recorded a net profit in the half of 163.7 million shekels against a loss of 1.9 million shekels in the corresponding half last year. The company controlled by Nati Seidoff and managed by Tamir Cohen, enjoyed a sharp increase in the value of the assets held by it to NIS 85 million.
The Electra Group, which is controlled by Elco of the Zelkind family and managed by Itamar Deutscher, which in recent years has made a double-digit number of acquisitions to consolidate its business in the fields of construction and infrastructure, recorded a 23% jump in revenues in the first half of the year to 5.2 billion shekels, which were unusually affected by a merger with public transportation operations Her – the Afikim bus company. Electra registered a sharp increase of 61% in the net profit which was NIS 190 million, seeking to benefit more from providing services in the fields of infrastructure. At the same time, it is preparing for the construction of the green line of the light rail in Tel Aviv, a project of NIS 9 billion.
REIT funds are also jumping on the bandwagon
The flourishing of the infrastructure industry and the strong results presented by the leading companies in it, have attracted more and more entrepreneurs to jump on the bandwagon in recent years. This is how a number of REIT funds specializing in investing in infrastructure have joined the Tel Aviv Stock Exchange in recent years. Such is the Keystone Fund established by CEO Navot Bar and the pair of entrepreneurs Roni Biram and Gil Deutsch, which recently won a tender to acquire control of the public transportation company Egged at a value of NIS 4.8 billion. Such are the Generation Capital Fund under the management of Yossi Singer and Erez Balsha; and the Aloma Fund headed by Uri Yogev.