Tel Aviv Stock Exchange: Robust Results Amongst a Challenging Backdrop

Q1 2024 Results

Tel Aviv Stock Exchange reported Q1 2024 results last Thursday. Despite the ongoing volatile geopolitical environment, the results were good:

Overall, TASE is reporting strong results for Q1 2024 and quarterly revenues hit an all-time high of ILS 108.3 million, up 8% from the same quarter last year. Our adjusted EBITDA also reached a record of ILS 48.6 million, a 12% increase from the same quarter last year, with EBITDA margin reaching a record 45%. Our quarterly results demonstrate the resilience of our business.

Ittai Ben-Zeev, CEO

Despite quarterly revenue growth coming in less than the company’s stated long term goal (10-12%), the result showed a number of positive signals. Firstly, a quick wrap around on the dynamic geopolitical situation. I covered a very high level (and amateurish) take on this in a previous article (that can be found here). So far my assumptions have been proven right (all those hours playing Rome Total War weren’t for nothing, mum!).

The Politics of Geography

In the wake of Iran’s ‘unprecedented’ arial assault earlier this year, Israel quickly struck back against some low level assets in Iran proper. Iran quickly dismissed the possibility that the attack had been coordinated by Israel. Israel, on the other hand, claimed responsibility. At this juncture it was relatively clear that Iran had no intention of igniting a large scale conventional war with Israel. To do so would have meant effectively declaring war on the US as well. This prospect would have been to no one’s advantage - especially Iran’s.

With a wider regional conflict becoming less and less of a possibility, US efforts shifted to the de-escalating the humanitarian crisis unfolding in the Gazan border town of Rafah. Israeli war aims, at this point, had not changed. They wanted Hamas routed (and by that I mean exterminated) and they wanted the return of the hostages taken during the events of October 7th. At this point, and even now, Israeli military actions had effectively moved most of the Gazan population into a small number of settlements on the Egyptian border. Hamas has been widely acknowledged to have perfected the art of embedding themselves into the civilian population. To achieve their objectives, the Israeli’s would inevitably end up affecting significant civilian casualties - a state of affairs that has drawn the ire of many Western onlookers, including the President of the United States.

In early May, Israel and Hamas came to a tentative ceasefire agreement in Cairo that was almost instantaneously undermined by all parties, including Egypt. Crucially, the remaining Hamas personnel wanted to keep on living and the Israeli’s wanted the hostages back. The game theory is straightforward here. Once the hostages are returned, Hamas has no guarantee that they will be allowed to continue existing. Even with mounting pressure from the US, it appears that Israel is intent on some form of action in Rafah. Many lives hang in the balance.

The fact that the war, so far, has not escalated into a more general regional conflict is a decided positive for the Israeli economy. There are a couple of macro-economic implications for TASE specifically. Firstly, the war has spurred inflationary pressures. For example, the vast majority of unskilled labourers in Israel are Palestinians. These people have been unable to work in Israel for the last six months. The cost of housing has increased significantly as a result. Israeli CPI ticked up earlier this year. While not a good societal outcome, TASE’s services are CPI-linked. The unhedged foreign investor gets a potential double-kick from this circumstance (currency and earnings). Secondly, strong debt issuance from the Israeli government has been a boon for TASE who controls the forum through which such financing is raised:

the Ministry of Finance raised a record ILS 28.7 billion at the beginning of March in an overseas issuance compared to ILS 23 billion in Q4 2023. It's worth noting that this issuance attracted record demand, the highest in the history of the state of Israel, 5x the amount issued, and with the participation of about 400 different investors from 36 countries around the world.

The total amount of debt raised by the Ministry of Finance in Israel and abroad in bond offerings totaled ILS 80.6 billion in Q1 2024 compared with ILS 59 billion raised in the previous quarter. The sharp increase in these issuances, mainly on TASE, contributed to the significant growth in trading volumes that I mentioned earlier.

Ittai Ben-Zeev, CEO

It should be no surprise that equity issuance has suffered throughout this period. Trading volumes, however, have been normalising.

Results and Highlights