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Israel Stocks to Beat Global Peers as Gas Flows Start, IBI Says

Israel’s shares will outperform global peers next year as domestic gas output starts, lifting shares of companies involved in drilling and those that rely on fuel imports, I.B.I-Israel Brokerage and Investments Ltd. said.

The benchmark TA-25 Index, which is up 13 percent this year, will “outperform most of world markets in 2013,” Tel Aviv-based Ori Licht, IBI’s head of research, said by phone today. He pointed to the Nasdaq Composite Index, Germany’s DAX Index and the S&P 500 Index. Israel’s measure has recovered since a drop of 18 percent in 2011, the most in four years.

After under performing the S&P 500 and Nasdaq in the past two years, the Israeli gauge is trading at 1.59 times book value, compared with 2.67 times for the Nasdaq and 2.1 for S&P, data compiled by Bloomberg show. Israel is due to start pumping gas from the Tamar and Dalit fields in 2013, enabling the nation to wean itself off its dependence on Egyptian gas for much of its electricity generation. Egypt cut its flow to Israel this year due to bombings along the Sinai pipeline, forcing companies to switch to more expensive fuels.

“The direct impact of the Tamar field on gross domestic product will be around 0.5 percent in 2013, but the indirect contribution of cheap local gas to industrial companies’ profitability and to their competitive advantage is also very significant,” Licht said today at a press conference in Tel Aviv. He added that government regulations, including steps to boost competition in telecommunications, will probably be put on hold due to Israel’s planned elections in January, thereby reducing pressure on some shares.

Local Supply

Tamar and Dalit are big enough to supply the country with fuel for two decades. Houston-based Noble Energy Inc. holds a 36 percent stake in the Tamar field situated in the Eastern Mediterranean, while local partners include Delek Drilling-LP and Avner Oil Exploration LLP, whose shares are up by a respective 3 percent and 2.5 percent this year.

Oil Refineries Ltd., whose shares have fallen 4.1 percent in 2012, last month signed a long-term contract for as much as $1.3 billion of natural gas from the Tamar field.

Expected infrastructure investments in the gas sector in coming years will also help boost the revenue of companies that take part in the projects and create jobs, Licht said. Woodside Petroleum Ltd., Australia’s second-largest oil and gas producer, this week agreed to pay as much as $2.3 billion for 30 percent of Leviathan, the country’s largest gas field, which is set to start production in 2016.

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