Avissar Group IPO: Valuation Revised, Warrants Offered

Avissar Group, a prominent Israeli real estate developer, is advancing its public market debut on the Tel Aviv Stock Exchange, targeting an initial public offering (IPO) that could raise approximately 617 million shekels. The company has recalibrated its valuation expectations to around 2.2 billion shekels pre-money, a notable adjustment from its initial aspirations of 2.6 billion shekels. This strategic move comes as the local IPO market has cooled, prompting many firms to revise their valuations or postpone listing plans.

To bolster investor appeal in the current climate, Avissar is sweetening the deal by offering warrants to subscribers at no additional cost. This tactic, mirroring strategies employed by other recent issuers like pharmaceutical firm Rafa (backed by FIMI Opportunity Funds), yield-focused developer Almadav, and drone manufacturer Cando Drones, aims to enhance the attractiveness of the offering. The warrants, exercisable at a premium to the IPO share price, could potentially inject up to an additional 420 million shekels into the company's coffers upon future exercise, providing a compelling upside for early investors.

The family-controlled business, founded in 1978, has a substantial development pipeline comprising nearly 1,800 residential units, projected to generate a future gross profit of approximately 1.3 billion shekels. Avissar's operations span residential project initiation, with a historical focus on southern Israel that has expanded to the central region, alongside a portfolio of income-generating properties. Despite a robust pipeline, the company, like many in the sector, faces the challenge of selling existing inventory. Currently, Avissar holds 33 completed but unsold residential units across its projects, representing an anticipated revenue of 77 million shekels and a gross profit of 21.5 million shekels.

In the first quarter of the year, Avissar reported a significant revenue surge of 86% year-over-year, reaching 265 million shekels. This growth was largely driven by revenue recognition from projects in Bnei Brak and the 'Ashira' development in Tel Aviv's Shdei Dov area, which includes 406 residential units. Within this project, 13 units totaling 115 million shekels were sold to members of the Avissar family, accounting for roughly 15% of the project's total sales value to date. The company stated these transactions were assessed against market prices at the time of agreement, based on external valuations.

However, the company's net profit for the quarter saw a substantial decline of approximately 75%, settling at 15.7 million shekels. This reduction is attributed primarily to lower gross profitability at the Shdei Dov project, influenced by an unusual recognition of financing expenses compared to other company projects. For the full year 2023, Avissar's revenues decreased by 37% to 423.5 million shekels, with net profit falling 68% to 44 million shekels.

The IPO is being managed by underwriters Lider and Apex. Following the offering, the four sons of the late founder, Moshe Avissar, are set to retain significant stakes. Eli Avissar, Chairman and CEO, is expected to hold about 31%; directors Yitzhak and Yoram Avissar will hold approximately 20% and 17%, respectively; and Mordechai Avissar will hold around 10%.