Shekel’s Worst Year Since 2001 to Boost Profit: Israel Overnight

Shekel Notes
Shekel notes, Israel's currency, are stacked in a till in Jerusalem. Photographer: Ahikam Seri/Bloomberg

Israeli technology companies will benefit from the shekel’s worst performance in a decade when reporting 2011 earnings this week, as the currency’s slide reduced their local expenses.

Check Point Software Technologies Ltd.’s profit probably rose last year as most of the Tel Aviv-based network-security company’s sales are denominated in dollars and 35 percent of operational expenses are in shekels, according to Wunderlich Securities Inc. The shekel dropped 7.5 percent versus the dollar last year, the worst performer among 11 Middle East currencies, on concern uprisings in nearby Arab nations and the European debt crisis will slow Israel’s economy.

“This is a situation that is unique to companies that have a meaningful operation in Israel and pay wages, rent and other expenses in shekels, while most of their sales are in dollars,” Daniel Meron, an analyst at RBC Capital Markets, said in an interview from Tel Aviv on Jan. 12.

Israel’s benchmark TA-25 Index dropped 1.9 percent to 1,107.26 at the 4:30 p.m. close in Tel Aviv today. It gained 1.4 percent last week. The Bloomberg Israel-US 25 Index of the largest Israeli companies traded in New York rose 1.1 percent to 89.25 last week, led by a 12 percent gain for Tower Semiconductor Ltd. and a similar advance for Magic Software Enterprises Ltd. Israel, whose population of 7.8 million is similar in size to Switzerland’s, has about 60 companies traded on the Nasdaq, the most of any country outside the U.S. after China.

Allot Communications Ltd., EZchip Semiconductor Ltd. and ClickSoftware Technologies Ltd. may also have seen a boost to 2011 earnings from the shekel as most of their operations are based in Israel, Meron said.

‘Expenses Tailwind’

Check Point, the world’s second-largest network-security developer, dropped 0.9 percent to $50.90 last week. The company will probably say that profit rose 23 percent to $2.85 cents a share in 2011 when reporting earnings on Jan. 17, according to the mean estimate of 23 analysts surveyed by Bloomberg.

The security company’s profit surged almost 50 percent in 2001 when the shekel lost 8.1 percent versus the dollar, the worst year since 1998.

The shekel’s weakness provides Check Point with an “operational expenses tailwind,” Brian Freed, an analyst at Wunderlich in Denver, Colorado, wrote in an e-mailed report on Jan. 13.

Allot, which develops Internet traffic monitoring equipment, climbed 1.5 percent last week to $16.01. The company’s Tel Aviv shares dropped 4.4 percent to 60.23 shekels, or the equivalent of $15.65, today.

The company is based in Hod Hasharon, Israel, where the research and development for its products is managed. Allot will probably report 2011 earnings of 44 cents a share, more than five times the 8 cents of profit in 2010.

Exports Climb

“Allot is our preferred play,” Meron said. “The company benefits from strong demand for network traffic management.”

Israeli exports, which account for 40 percent of the county’s gross domestic product, rose 0.8 percent to $3.8 billion in December, the Jerusalem-based Central Bureau of Statistics said on Jan. 12. Israel’s high-technology industry accounts for 47 percent of manufactured exports, according to the CBS.

ClickSoftware, a maker of order-tracking programs, advanced 6 percent last week to $10.30, the highest level since July 8.

EZchip, the Israeli maker of network processors, gained 3.7 percent to $30.38 after the company’s Tel Aviv shares added 2.9 percent to 114.30 shekels, or the equivalent of $29.69. The 67-cent premium was the biggest among the dually-traded companies. EZchip increased 0.7 percent to 115.10 shekels, or $29.92, today.

The shekel weakened 0.4 percent to 3.8474 per dollar on Jan. 13. The currency dropped to a 17-month low of 3.8355 on Jan. 6.

Cheaper Hiring

The currency’s decline “lowers their local costs and makes it cheaper for them in dollar terms to hire people,” said Terence Klingman, the head of research at Meitav Brokerage in Tel Aviv. “It also makes their exports more competitive, meaning the companies can sell more worldwide.”

In a blow to European policy makers efforts to stymie the effects of the euro zone’s debt crisis, France’s was downgraded one level from the top credit rating at Standard & Poor’s on Jan. 13, while Italy, Portugal, and Spain were reduced by two levels. Austria also lost its AAA mantle.

“The policy initiatives taken by European policy makers in recent weeks may be insufficient to fully address ongoing systemic stresses in the euro zone,” according to the S&P statement.

The Bloomberg Israel-US 25 Index has climbed 6.3 percent this year, beating TA-25 Index, which has gained 2 percent and the Nasdaq Composite Index’s 4.1 percent advance over the same period.

Teva, Mellanox

Teva Pharmaceutical Industries Ltd. has led gains in 2012, rising 10 percent to $44.55 after the world’s largest maker of generic drugs said on Jan. 1 that Jeremy Levin, a former executive at Bristol-Myers Squibb Co., will replace the retiring Shlomo Yanai as chief executive officer in May.

Mellanox Technologies Ltd., the Israeli adapter maker partly owned by Redwood City, California-based Oracle Corp., dropped 1.2 percent to $33.28 on Jan. 13. Mellanox lost 4.2 percent to 126 shekels, or $32.75, in Tel Aviv today.

SAP AG, the largest maker of business-management software, reported fourth-quarter sales and profit on Jan. 13 that beat analysts’ estimates, stepping up its rivalry with Oracle, which reported earnings that missed estimates last week.

SodaStream International Ltd., the Airport City, Israel-based maker of homemade soda machines, climbed 7.1 percent to $39.96 on Jan. 13, the highest level since Sept. 21.

“Current business trends remain healthy, including the company’s efforts to expand in the U.S., while Soda’s innovation pipeline appears robust,” Joseph Altobello, an analyst at Oppenheimer & Co., wrote in an e-mailed report on Jan. 13.

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