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Iron Quarter for Scope: Posts NIS 50m operating profit.

07/11/06

From: Globes, 7 November 2006
Uri Shuster
 
Less than a month ago, general manager Shmuel Shiloh set a new target for Scope Metals Trading and Technical Services Limited. (TASE: SCOP), the importer and marketer of raw materials for the metals industry, which he controls and runs: “To reach NIS 1.5 billion in sales within three to four years from today.” This is a quite ambitious target to say the least, since the company posted a turnover of NIS 604 million in 2005 as a whole.
 
Nonetheless, Shiloh is not making empty boasts; Scope Metal’s financial results for the third quarter of 2006 depict a company with a clear growth trend. The financials show improvement in every important variable and hint that the company might surpass the NIS 1 billion threshold in sales this year. If that is the case, Shiloh’s target is absolutely rational.
 
Scope Metals posted NIS 274.8 million in sales for the third quarter, over 80% more than for the corresponding quarter. Most of the growth can be attributed to the company’s decision that international markets would be its springboard for future expansion. Since the beginning of the year, international sales have reached 35% of total turnover, reaching NIS 261.4 million. Most revenue came from the United States and Europe, and the coming quarters will also show the figures from activity in China.
 
Scope Metals is not resting on its laurels. “The company’s management has set itself the goal to boost the sales of Scope and its foreign subsidiaries to over 50% of consolidated sales of the company,” states the board of directors’ report. This target requires 20-25% annual growth.
 
Scope Metal’s third quarter gross profit more than doubled to NIS 89.1 million. Despite the significant growth in sales and marketing expenses, because of business expansion, operating profit totaled NIS 50 million. It should be noted that if the quarter is taken as representative, then the company is posting an annual operating profit of NIS 200 million. However, the company’s market cap as of today is $180 million, which means that it’s traded at a low p/e ratio.
 
Scope Metal’s bottom line shows a 160% jump in net profit to NIS 298.4 million. The expansion of business has led to an increase in inventory and the number of customers, together with the rise in profits, current cash flow remains at zero. The company’s profit in the first three quarters of the year nearly doubled to NIS 62.4 million.
 
“We’re pleased to present a record quarter in the company’s activity, which is mainly due to organic growth in most areas of business, and from the expansion of our international activity,” said Shiloh. “In addition to the ongoing growth in domestic activity, the company’s management sees international activity as the main engine of growth in the coming years. Therefore, we’re continuing to examine additional countries and markets, without any effect on the scale of domestic activity. We’re also examining the entry into new sectors. The flow sector, which constitutes a negligible part of our business, is expected to grow and grab a larger part of sales in Israel in 2007.”
 
First Israel Mezzanine Investors Ltd. (FIMI) CEO Yishai Davidi is known for his sensitive sense of smell for business potential in international markets. That is why he invested NIS 157 million in Scope Metals for a quarter of its share capital. The allocation was made at a share price of NIS 53.50 per share. The company’s share is now traded at around NIS 80, which means that FIMI has made a paper profit of NIS 78 million in seven months.
 
Davidi said today, “Scope has great potential. I believe that its management will lead the company to a completely different level of activity, by expanding existing activity overseas and in emerging markets.”
 
Migdal Insurance and Financial Holdings Ltd. (TASE: MGDL) has also benefited from the improvement in Scope Metal’s business. Migdal, which invested NIS 30 million in the company in March at NIS 55 per share, has made a paper return of over 50% in just eight months.