Bloomberg News

Elbit Drop Cut as Conflict Lifts Orders: Israel Overnight

January 01, 2013

Elbit Systems Ltd. (ESLT), Israel’s biggest non-government developer of defense technology, posted its best performance since 2009 in New York last year as escalating violence in the region spurred more contracts.

Shares of Elbit climbed 4.2 percent yesterday in the U.S. to $40.05, trimming the decline in 2012 to 2.2 percent. The stock sank 23 percent in 2011 and 18 percent in 2010. The Bloomberg Israel-US Equity Index (ISRA25BN) of the largest Israeli stocks traded in New York added 1.1 percent to 86.37 yesterday, capping a 6.3 percent jump last year. Retalix Ltd. (RTLX) and Mellanox (MLNX:US) Technologies Ltd. were the best performers on the gauge in 2012.

A succession of orders from Israel’s government helped Haifa-based Elbit rebound from a six-year low reached Aug. 28, compensating for falling revenue in the U.S. and Europe as the nation engaged in a conflict with Hamas militants and tensions with Iran intensified. The company said yesterday that it received $315 million in contracts from Israel’s Defense Ministry following a Sept. 10 order for $420 million.

The orders “no doubt will create a jump in the company’s backlog, which makes investors more comfortable into 2013,” Guil Bashan, an analyst at Israel Brokerage & Investments Ltd. who rates Elbit neutral, said by phone from Tel Aviv yesterday. “This will, in a way, offset the decline in contracts in other markets because of declining defense budgets.”

The Israeli orders include sales of unmanned systems, electronic warfare and avionics, Elbit said in a statement to the Tel Aviv Stock Exchange. The company’s backlog of orders was $5.53 billion as of Sept. 30, compared with $5.47 billion on June 30 and $5.45 billion on March 31. Israel’s TA-25 (TA-25) index added 1.8 percent at 10:44 a.m. in Tel Aviv.

‘Take Advantage’

“The contract is spread across all sectors (ESLT:US) within Elbit Systems and involves practically all capabilities the company is involved in, so it gives investors a support,” Bashan said. “As long as there are conflicts in this region, especially in Israel, Elbit will continue to take advantage in order to help the army face those conflicts.”

A defense ministry committee recommended Aug. 19 increasing Israel’s defense budget by about 3.5 percent a year to 76.2 billion shekels ($19.8 billion) in 2017 from 64 billion shekels in 2013.

Israel began an eight-day military operation termed Pillar of Defense on Nov. 14 against militants in the Gaza Strip in which 167 Palestinians and six Israelis were killed. There is a 33 percent chance Israel or the U.S. will launch a military strike against Iran’s nuclear sites by the end of 2013, according to odds compiled by Intrade.com, as of Dec. 31.

Elbit, which got 50 percent of revenue from the U.S. and Europe in 2011, is seeking new revenue sources as American lawmakers plan to cut defense spending by at least $487 billion over 10 years and as gross domestic product in the 17-nation euro region stagnates amid the deepening debt crisis.

Retalix, Mellanox

Retalix rallied (RTLX:US) 84 percent to $29.74 last year, the biggest annual gain since 2009. The shares in Tel Aviv surged 79 percent to 110.90 shekels, or the equivalent of $29.72. NCR Corp. (NCR:US)said (RTLX:US) on Nov. 28 that it will buy the Ra’anana, Israel-based maker of supermarket software for $650 million, the third-biggest acquisition in Israel last year. The shares today gained 0.8 percent to 111.8 shekels, or the equivalent of $29.94.

Mellanox, the maker of technology used to transfer and store data, soared 83 percent to $59.38 last year as it benefited from surging demand for its InfiniBand technology. The shares in Tel Aviv led the benchmark index, advancing 81 percent to 224.90 shekels, or the equivalent of $60.27.

The shares pared a gain of as much as 269 percent in the first eight months of the year on concern the Yokneam Elit, Israel-based company faces increasing competition from Intel Corp. (INTC:US), the world’s largest maker largest of chips. The Israel shares this morning fell 1.4 percent, to 221.7 shekels, or the equivalent of $59.36.

Israel, whose population of 7.8 million is similar in size to Switzerland’s, is home to more startup companies per capita than the U.S. and has 54 companies traded on the Nasdaq Stock Market, the most of any country outside the U.S. after China.

To contact the reporter on this story: Victoria Stilwell in New York at vstilwell1@bloomberg.net

To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net


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Companies Mentioned

  • MLNX
    (Mellanox Technologies Ltd)
    • $45.77 USD
    • 1.48
    • 3.23%
  • ESLT
    (Elbit Systems Ltd)
    • $61.6 USD
    • 0.92
    • 1.49%
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