Bloomberg News

Blue Square Trails Shufersal by Most in Year: Israel Overnight

October 05, 2011

Oct. 5 (Bloomberg) -- Alon Holdings Blue Square Israel Ltd. is falling the most among local supermarket chains on concern government measures to lower prices will further erode profit margins at the country’s second-largest food retailer.

Blue Square declined for a third day, losing 2.9 percent to 18.66 shekels, or the equivalent of $5, at the 4:30 p.m. in Tel Aviv. The shares have lost 21 percent in the past month. They sank 7.2 percent to $5 on the Nasdaq Stock Market yesterday. Shufersal Ltd., Israel’s biggest grocer by sales, rose 3.3 percent in the past 30 days to 15.21 shekels. Israel’s TA-25 Index climbed 1.7 percent to 1,038.50 today.

Demonstrations and boycotts against increases in the cost of living have led companies to cut prices and the government to study ways to lower consumer costs and boost competition. Blue Square posted an operating margin in the second quarter of 3.3 percent, below the 4.9 percent for Shufersal and 6.8 percent for rival Rami Levi Chain Stores Hashikma Marketing 2006 Ltd.

“The business environment that was created following the protests is such that companies cannot raise prices,” said Meir Slater, an analyst at DS Brokerage Ltd. “Blue Square is the primary and main company to be impacted by these changes because it has a lower operating profit.”

Tnuva Food Industries Agricultural Co-Op In Israel Ltd., which controls about 70 percent of the country’s dairy market, said Oct. 2 it was cutting recommended prices by as much as 15 percent. Competitor Strauss Group Ltd. followed suit the same day.

Panel’s Proposals

Prime Minister Benjamin Netanyahu appointed a panel led by economist Manuel Trajtenberg to draft a response to protesters’ grievances. The Cabinet examined this week the panel’s proposals, which include easing import restrictions, raising corporate taxes, increasing income taxes on people earning more than about $130,000 a year and boosting the supply of affordable housing.

Protesters targeted the cost of cottage cheese in June and a month later more than 100,000 people had joined a Facebook page calling for a boycott of the product. The protest inspired consumer actions against the cost of diapers, baby formula, breakfast cereals and other consumer products.

Food costs fell 0.2 percent in August after declining 0.6 percent in July, according to the Jerusalem-based Central Bureau of Statistics.

Rami Levi, the Israeli supermarket chain that won customers with discounts such as a kilogram of chicken for 1 shekel (one pound for 12 cents), is down 2.7 percent in the past month.

TA-25 Drops

Blue Square, based in Rosh Ha’Ayin, Israel, will comply with the panel’s decisions, Anat Raz, a spokeswoman for the company said in response to questions.

The Bloomberg Israel-US 25 Index of the largest New York- traded Israeli companies rose 0.2 percent to 77.94.

The shekel was little changed at 3.7340 against the dollar. The currency has dropped 3.4 percent in the past 12 months, the best performer among 10 emerging markets in Europe, the Middle East and Africa tracked by Bloomberg.

Israel, whose population of 7.7 million is similar to Switzerland’s, has about 60 companies traded on the Nasdaq stock market, the most of any country outside north America after China. It is also home to the largest number of startup companies per capita in the world.

Teva Declines

The nation’s stock market was upgraded to developed market status by MSCI Inc. in May 2010, the same month the 63-year-old country was accepted to the Organization for Economic Cooperation.

Teva Pharmaceutical Industries Ltd., the world’s largest maker of generic drugs, gained 0.2 percent in Tel Aviv to 133.3 shekels, or the equivalent of $35.70. The U.S. shares fell 1.6 percent yesterday to $35.85.

Merck KGaA said its Merck Serono unit will develop and market a pill for multiple sclerosis with Japan’s Ono Pharmaceutical Co. to compete with a similar product made by Novartis AG. Copaxone, Teva’s injected treatment for MS, accounted for 23 percent of the company’s second-quarter sales.

“This is bad news for Teva,” said Gilad Alper, an analyst at Excellence Investments House in Ramat Gan, Israel. “This stresses again the kind of strategic difficulties that the company faces.”

Teva said on Aug. 1 that laquinimod, its planned successor to Copaxone, failed to reduce relapses more than placebo in a clinical trial.

SodaStream, Allot

SodaStream International Ltd., the Israeli maker of homemade soda machines, climbed for the first day in five, jumping 9.1 percent to $31.76. Shares of the company were raised to “buy” from “hold” at Deutsche Bank AG.

SodaStream’s shares are attractive after their 57 percent decline in the past three months through yesterday, Bill Schmitz, an analyst at Deutsche in Greenwich, Connecticut, wrote in an e-mailed report.

The company “remains in the early stages of a distribution expansion story with considerable room for further store expansion,” he wrote.

Allot Communications Ltd., Israel’s biggest maker of high- speed networking equipment, gained 1.2 percent to 37.01 shekels, or the equivalent of $9.91. The U.S. shares increased 7.8 percent to $10.19.

Allot’s stock in New York fell 47 percent in the second- quarter, leading declines on the Bloomberg Israel-US 25 Index.

“We expect the weakness in share prices to be transient as the company fundamentals are solid,” Ashok Kumar, an analyst at Rodman & Renshaw LLC in New York, said in a note to clients. “We view any consequential share price weakness from now as a buying opportunity.”

--With assistance from Alisa Odenheimer in Jerusalem, Shoshanna Solomon in Ramat Gan and Claudia Maedler in Dubai. Editors: Brendan Walsh, David Papadopoulos

To contact the reporter on this story: Tal Barak Harif in New York at tbarak@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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