Phoenix Brokerage Initiates Coverage of Generation Capital with Buy Rating

Phoenix Brokerage has initiated coverage of Generation Capital, a company operating in the energy, water, waste, and transportation sectors, with a 'Buy' recommendation and a price target of NIS 2.93. This target represents a potential upside of approximately 22% from the stock's trading price of NIS 2.39 at the time of the analysis. Phoenix analysts estimate Generation Capital's holdings are significantly undervalued compared to its market capitalization of around NIS 5.24 billion.

Analysts David Gabai and Noam Waknin value the fund's total holdings at approximately NIS 6.75 billion. After deducting net financial debt of about NIS 264 million, they arrive at a Net Asset Value (NAV) of roughly NIS 6.49 billion, which is about 24% higher than the company's market value. This valuation accounts for full dilution from options.

The company's value is primarily attributed to its three main operational arms. PowerGen, its energy division, is valued at approximately NIS 3.54 billion, with Generation Capital's share being around NIS 3.1 billion. BluGen, focused on water and waste, is valued at NIS 2.22 billion, with Generation Capital's stake at NIS 1.77 billion. Bon Tour, involved in private and public transportation, is valued at NIS 1.89 billion, with Generation Capital holding NIS 1.43 billion. Generation Capital also has interests in logistics, natural gas distribution, and electric vehicle charging.

A key growth driver identified by Phoenix is PowerGen's potential acquisition of Shu'av Energy for approximately NIS 4.45 billion. This deal could significantly expand PowerGen's capacity in conventional and renewable energy production and storage, potentially making it one of Israel's largest private electricity producers. The acquisition's financing is expected to involve capital raising, asset sales, bond issuance, institutional investors, and credit facilities. Phoenix believes PowerGen's current valuation does not yet reflect the full potential of integrating Shu'av Energy, contingent on the deal's completion and financing.

Phoenix also highlights Generation Capital's renewable energy activities, valued at about NIS 1.46 billion, including SolarEdge and Yevuli Solar. Many of these projects are slated to begin generating revenue between 2027 and 2028. PowerGen recently secured NIS 1.1 billion in financing for solar and storage projects. The analysts project additional value creation of NIS 600-700 million by the end of 2028 from existing assets alone, beyond current valuations. The Rein-dir power station project, expected to be operational by 2031, could see Generation Capital's stake increase from NIS 1 billion to NIS 2.3 billion upon completion.

BluGen's water and waste management operations are also seen as significant growth engines. Its water and engineering activities are valued at approximately NIS 1.17 billion, with rights to desalination plants in Palmahim and Ashdod contributing significantly to national desalination capacity. The waste sector is also expected to see value enhancement through projects like the Smart Waste facility and waste-to-energy plants, potentially increasing treatment capacity to 1.2 million tons of mixed waste and 400,000 tons of organic waste annually.

Bon Tour's transportation activities, including private shuttles and public transport through Metropolin, are valued at NIS 1.89 billion. Analysts forecast revenue growth for Bon Tour's shuttle services and Metropolin, which benefits from a payment model based on kilometers driven rather than passenger numbers. However, future growth for Metropolin depends on winning new tenders and the expansion of public transport clusters.

The analysis notes that realizing the full upside potential is contingent on deal completions, permits, financing, and long-term project progress. Interest rate environments and legal/regulatory disputes, such as those concerning the pumped storage facility in Ma'ale Gilboa, could also impact valuations. Notably, Phoenix Group itself has a business relationship with PowerGen, expected to hold approximately 12.4% of its shares post-transaction.