Danel (Adir Yeoshua) Ltd. (DANE) is an Israeli-based company that engages in the provision of nursing, human resources, housing, and medicine services. It operates in four main segments: Nursing Services, Human Resources, Services for People with Disabilities, and Medical Services.
- In the Nursing Services segment, Danel provides customers with nursing services, professional trust nursing services to the elderly and others, and placement counseling in nursing homes. This service is provided mostly under the auspice of the Israeli personal and home-care nursing law. Danel is also authorized by the ministry of industry, trade and labor to bring foreign workers into Israel and has accumulated extensive experience in finding the right and most suitable caregiver for every customer whether it is an elderly person or somebody with special needs.
- In the Human Resources segment, Danel provides services in the field of human resources and project management, including recruitment services, payroll, employment services, employee placement services, and outsourced project management services.
- In the Services for People with Disabilities segment, Danel manages dormitories, hostels for the mentally handicapped, hostels in the field of autism, a rehabilitative employment enterprise, and a rehabilitative and therapeutic day center.
- In the Medical Services segment, Danel provides mediation services for medical tourism, communicating between foreign patients and Israeli doctors, to enable foreign patients to undergo medical procedures in Israel. It also provides eye surgery services, and in 2022 added to this area medical aesthetical services.
Danel has been able to grow revenue every year since 2012 from 178 ILS to 434 ILS, a compound aggregate growth rate (CAGR) of 9.28%.
During the same period, earnings per share also grew from 8.28 ILS to 21.29 ILS, a CAGR of 9.9%. There was a sharp drop in earnings in 2022 caused by a number of reasons:
- Drop in earnings from the Medical segment which was affected by the war between Russia and Ukraine. A large part of the “medical tourism” services provided in Israel is given to Russian citizens, and with the war, there has been a large reduction in these services. At the same time, Danel provides egg donation services in conjunction with Ukranian service providers, and this are has also seen a large reduction in activity because of the war.
- Years 2020 and 2021 saw a large increase in earnings from one-time items during the Corona pandemic, which have now stopped.
Since 2009, Danel has a policy of distributing at least 50% of net earnings to shareholders. In fact, it has distributed much more than this, but since earnings have grown during this time, it has been possible to do maintain this growth.
Starting in 2012 with a dividend of 11.09 ILS per share, when the dividend was very high (extremely high at 134% payout), and ending in 2020 with a dividend of 20 ILS, it has given a compound growth of 6.07%.
Since the company is distributing a lot of cash as dividends, I wanted to look at the cashflow of the company, because revenue and earnings are accounting items that can be manipulated to make things look better than they are, but cash flow numbers are something that is harder to manipulate (at least I hope so). From what is shown in the annual reports, the numbers are OK to support the dividend, but I’m concerned about the future as cash flow has been decreasing in the last two years. I hope this is a result of the Corona pandemic and that things will stabilize in the future. But as some say, hope does not buy the groceries.
Looking at the latest numbers, I don’t like is the growth in debt since 2019. Total debt per share in the last fiscal year is more than ten times what it was in 2018.
What is the source of this debt? The first jump (2019) comes from the application of an accounting practice (IFRS 16), that from what I understand (from here, but I’m not an accountant), changes how leases are recognized in the balance sheet of a company, so it is not new debt, only an accounting change. The next big increase in 2021 is from a bank loan with elative low interest (Prime + 0.1%) and for more changes caused by leases. Lastly, in 2022 Danel took a 5-year loan of 60M ILS at a constant interest rate of 2.51%. With the recent interest rate hikes done worldwide and the current economic environment, this was a very good move – the company can simply part this loan in a safe investment (an Israeli 5-year bond is yielding ~3.7%) if it doesn’t need the money, and if it does, it is paying very cheap for it. So, while the numbers may look ugly, it seems there is no issue here.
Bottom line, Danel is a very interesting company, which has a good moat in the Israeli market for nursing and disability services. It distributes a lot of its earnings as dividends, but since the Corona pandemic (and the Ukranian war), the financials have become less stable so it is harder to see what the future will bring. At the current price of 27.57 ILS per share, after falling more than 50% from it’s highest price last year, this can be an interesting investing with possible yield and also price growth.
Disclaimer: I own stock in the company.
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