Rami Levi Chain Stores Hashikma Marketing 2006 Ltd. (RMLI) is the third largest Israeli retail supermarket chain with 53 discount supermarkets in Israel. Since going public in 2007, it has increased its sales volume and number of stores each year, and has also diversified into communication services, real estate, coffee shops (which include minimarkets), and pharmacies.
The founder of the company, Mr. Rami Levi, still manages the company and owns 39.91% of the stock, which is usually a positive investment signal.
From 2022’s annual report, Rami Levi achieved sales of 60.06 thousand NIS per square meter, which is impressive, especially as Shufersal, the biggest supermarket chain in Israel, only did 25.4 thousand NIS per square meter. The company has a private label that constitutes 24% of all sales, which creates even more sources of revenue. This number was 65.32, and 59.39 thousand NIS per square meter in 2020 and 2021 respectively – so even in the middle of the COVID pandemic the company was highly efficient and profitable.
Rami Levi is known for its low prices, good quality, and “good enough” variety. There are other discount supermarket chains in Israel that compete with Rami Levi on price point, yet many do this by providing limited variety. This is one of the strong points of the company. At the same time, their online supermarket is very limited – I’ve tried multiple times to do my internet shopping with them, but there are many missing items that I always find in Shufersal online. This may be a personal issue and I cannot say if this is a problem for the average customer.
Competition in the retail and discount supermarket space is fierce, and while Rami Levi is a strong player, it can still suffer from new players entering the field. This is important since in 2023 the global supermarket chain Carrefour is entering the market.
In 2018 Rami Levi bought control of Good Pharm, which is a low-cost pharmacy and toiletry chain. It has expanded from 30 branches in 2020 to 53 branches in 2022, and more expansion is planned in the future. In the latest annual report, the company states that this area will stop being reported separately, so it seems it has not been a great success.
Rami Levi is also expanding into the insurance business, by opening “Ravi Levi Insurance Agency” which will sell home, car, health, and other insurances. It is still early to know if this will add value to the company or will defocus it from its main business.
The company has managed to increase revenue per share from 205.94 ILS to 511.19, an absolute growth of 148.21%, and an annualized compound growth rate of 9.52%.
While revenue has grown consistently, earnings per share have not. The absolute growth since 2012 is 41.25%, which is an annual compound growth rate of 3.51%, with some years of negative growth included.
The company has a dividend policy that was instantiated in 2010 to distribute between 60%-75% of the net earnings each year. This policy was updated in 2019 to distribute between 60%-95%. Dividends have grown from 5.26 ILS in 2012 to 13.86 ILS in 2022. The change in policy is easy to notice in the last 3 years.
The average dividend payout ratio is 73.7%, which is high for my taste. Furthermore, in 2022 it was more than 110.2%, which means the company though it was better to distribute more cash than to reinvest it in the company. This does not paint a bright future for me.
At the current price of 220 ILS, Rami Levi is trading at a trailing P/E of 17.48, which is kind of average, and a trailing dividend yield 6.3%, but I think last year’s high dividend will not repeat itself, so the actual yield is probably lower.
Even though I really like the company, the future looks complex and full of challenges. For now, I guess Rami Levi will not be part of my investments.
On a side note, the debt of Rami Levy jumped from 0 to ~120 ILS in 2019. As I’m getting more experience and practice reading annual reports and have read more of them, it was easy to find that the jump was caused by implementation of IFRS 16, like for Danel (More info on IFRS 16 can be found here). As always in life, the more you do the more you learn, the more you can do.
Disclaimer: I don’t hold stock of Rami Levi directly but may be invested in the company through ETFs or other general market securities.
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