Today’s 2014 Top Picks update is an energy company. It recently reported first quarter revenues of NIS 9 billion and net income, excluding amortization due to assets in the process of being sold, of approximately NIS 111 million (Israeli currency).
Delek Group (DGRLY)
from Global Investing
Delek Group (DGRLY) was long-considered the Berkshire Hathaway of Israel, an insurance company which invested its premium income in companies. However, its principal, Yitzhak Tshuva, has become an oil and gas investor more recently, concentrating Delek’s portfolio on developing the gasfields off the Israel Mediterranean coast.
One field, Tamar, is now producing gas which is supplying electric and water-treatment (desalination) utilities in Israel and Jordan. And it may eventually be linked across the Sinai Desert to gas liquefaction plants in the Nile Delta, by reversing an existing gas pipeline. Another offtake agreement is pending to export Tamar gas between the partners and a Spanish company, Union Fenosa Gas SA.
Even more exciting are Delek’s holdings in another offshore gasfield, the aptly-named Leviathan. Talks with an Australian oil company, Woodside Pete—which wanted to take a 30% stake in Leviathan—failed this spring mainly because of a dispute with the Israeli authorities over how much to tax Woodside for exports of gas from a future floating gas liquefaction plant to be built in the Mediterranean.
Now another contender from the Pacific is in sight, CNOOC of China. It is in negotiation with Delek and its partners to take a stake in the Aphrodite gasfield off the coast of Cyprus, but near the Israeli border, and put up a floating gas liquefaction plant in Cypriot waters.
Delek holds varying stakes in these offshore fields with its major partner, Houston’s Noble Energy, and some smaller Israeli players. With the end of the Woodside plan, Delek Group has been cashing in its chips by selling all or part of its other holdings from when it was less focused on gas: Delek US, operator of gas stations and convenience stores plus a refinery; sale of Republic Insurance Companies, also in the USA; selling its gas stations in France acquired from BP; selling Roadchef (motorway diners in Britain) and divesting some of its financial industry holdings in Israel. This raised $.1.2 billion.
Most recently DGRLY sold Barak Capital (at a huge 10-bagger gain in 7 years.) In addition, Delek has hit the bond market to refinance older higher cost debentures.
The purpose of all this is to allow Tshuva’s insurance to go ahead with Leviathan without relying on a partner other than the operator of all the fields, Noble Energy (NBL). Tamar is already producing profits but the demand for investment in Leviathan is, as the name indicates, huge.
Interestingly enough, for all the liquidation of assets, Delek has kept its stakes in desalination (via a joint venture) and some positions in drug discovery stocks. It is not putting all its chips on gas development.
Vivian Lewis, Global Investing, www.global-investing.com, 212-758-9480, June 26, 2014