By Aaron Katsman
IsraelNewsletter.com
Taro Pharmaceutical Industries (TAROF.pk) announced today that the company has been sold to India’s Sun Pharmaceutical Industries for $7.75 a share, a 27% premium to Friday’s closing price. Sun will also take over Taro’s debt of $454 million. Sounds good? Not so much. The price is 15% lower than Taro stock price was two months ago when they announced that they were pursuing a potential sale. The company has been disappointing investors for years, and this is just another feather in their cap.

It was just a few weeks ago that Morningstar analyst Brian Laegeler wrote a piece about how he thinks the company is currently worth $13 a share and has potential to reach $20. Not only was he duped like the rest of us, Brandes Investment Partners purchasing a lot of shares in the $9 range, and of course Franklin Advisors and Templeton Asset Management, which together own 9% of Taro at prices around $13, aren’t exactly doing summersaults.

Will Franklin Resources be able to come in and save the day? Three weeks ago, they filed a motion in Israel seeking appointment of a special interim manager to review Taro’s efforts in identifying strategic alternatives. Over the weekend, they filed for an injunction to prevent Taro from entering into any deals. The motion is to be heard in the next day or two.

With the deal subject to approval of Taro Shareholders, and the potential for the courts to step in and halt the proceedings, there is potential for the deal to get blocked, and maybe shareholders will one day be able to realize the true value of their holdings.
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Aaron Katsman is the lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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BusinessWeek wrote last week of the growing demand for Israeli defense technology. Worldwide defense (war?) spending reached over $1 trillion (nearly half of that was from the US).

Israel, for better and for worse, has learned how to deal with a war setting and has quickly become the world’s fourth largest arms supplier (after US, Russia, and France). BusinessWeek cites that military exports from Israel rose 20% year-over-year, reaching $4.2B and interestingly, India, not the US, appears to be the largest percentage of that business. The article cites Indian government sources that show in 2006 that India bought $1.5B worth of defense equipment from Israel.

This bodes really well for Elbit Systems (ESLT), an Israeli defense firm with an almost $2 billion market cap. ESLT manufactures all the cool stuff: in addition to integrated communication networks, Elbit also sells helmet mounted systems, unmanned air vehicles (think James Bond), and electronic warfare and signal intelligence systems.

Cool stuff: the stock is up 35% on the year back of

1. strong organic growth (Q1 revenues were up 20% over last year). Gross margins were in line but would have been even stronger if not for the strength in the shekel (accounting for increased Israeli labor costs). See last week’s article on the strength in the Israeli shekel versus the US dollar.
2. a string of smart acquisitions (including Elisra) which bode well for strong synergies in the years to come.

All this prompted a leading Israeli analyst, Shaul Eyal at CIBC, to raise his price target last week from $36 to $52. UBS also jumped on the bandwagon an upgraded the stock from Neutral to Buy based on a forecast of 2007 EPS of $3.00 (up from $2.50)

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By Aaron Katsman
IsraelNewsletter.com
Helped by their strong relationship with Cisco Systems (CSCO), Radvision (RVSN) continues to produce strong earnings growth. RVSN, an innovator in the video-conferencing over IP, wireless and desktop markets, has used its strong technology to take video conferencing to the next level. The company posted a first quarter revenue increase of 21% over Q1 ’06, surpassing the company’s own revenue guidance.

Boaz Raviv, Chief Executive Officer, commented: “Our first quarter growth was driven by continued strong demand for our SCOPIA(TM) video platform in the room conferencing market and the success of our channel partner relationships led by Cisco. In total, our room conferencing revenues were almost double those of the first quarter last year as were our revenues through Cisco.”

With over 35% of revenue coming from Cisco, there is room to worry that there isn’t a large enough diversified revenue stream for RVSN. After all, if Cisco were to opt out of its agreement, Radvision would be in trouble. I don’t think that that is going to happen so soon. Keep in mind that they have been working together since 2000, and Cisco has made no secret of their push into the video market. Why would they change partners mid-stream, especially after such a mutually beneficial relationship? I actually think that the more reasonable scenario would be for Cisco to buy RVSN. But who knows?

Even though RVSN relies on Cisco for the lion’s share of the business, it is nonetheless rolling out new products, which could give a good boost to revenue in the late 3rd or early 4th quarter of ’07.

Raviv adds, “We have now introduced SCOPIA(TM) Desktop, which we believe represents another major advance in the Unified Communications market place. SCOPIA Desktop is a simple solution that extends the reach of traditional room conferencing to remote users without complex software installations, licensing fees or firewall transversal problems.” In other words, you can sit at home and join your conference without a lot of technical complications.

RVSN announced a share buyback program in Q4 ’06, and with over $155 million in the bank, not only should the company make good on their repurchase plans, but it should also have money left over for acquisitions.

With the stock trading in the 19.60 range, it’s down over 20% from its high, which could indicate a good entry point for long-term investors.
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Aaron Katsman is the lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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By Aaron Katsman
IsraelNewsletter.com

With their earnings report due out at the end of the month, G. Willi Food-International Ltd. (WILC) has provided a glimpse into what to expect by forecasting a 28% growth in quarterly revenues over last year’s comparable quarter. I would like to give a quick update to the report wrote last August. The stock has moved up 26% from the $6.20 it was trading at the time of the report. As hoped for, the company has been executing its business model efficiently, especially in penetrating the huge kosher food market (estimated at over $6 billion) in the U.S. Mr. Zwi Williger, President and COO of Willi-Food said, “We believe that we have made great strides in executing our international growth initiatives, and we expect to deliver record quarterly revenues for the period. In January, we closed the acquisition of Laish Israeli, a U.S. importer and distributor of kosher food products, which is already beginning to contribute to our results. More recently, we concluded a joint venture with the Baron Family to form a global kosher trade and export company that we expect to further extend our international capabilities by adding complementary product lines and presence in several new markets.”

I had mentioned in last summer’s report that I thought that 3rd quarter ’06 earnings were going to get a boost, and indeed they did, from the war that Israel experienced last summer, because generally, Israel empties out in July and August, with tens of thousands of Israeli’s traveling abroad. Last year cancellations abounded, and thousands of consumers stayed in the country for six weeks more than usual, thus adding to WILC bottom line. Assuming no war this summer (no easy assumption, but that’s for another post), this year’s 3rd quarter figures versus last year’s will probably not show such strong growth, due to the fact that Israel will probably empty out for the end of the summer. It will be important to take that into consideration when viewing those numbers.

In any event, the company is poised to continue its strong growth and remains cheaply valued in relation to its competitors. While we have seen some PE expansion, the PE still is under 11 which is more than half the industry norm. And, with strong gross margins, the stock has plenty of room to run. Not only that, there is a float of only 2.5 million shares and insiders hold over 70% of the shares.

The company has also raised money through a private placement, using the proceeds to build a new distribution center that will help increase Willi-Food’s capacity and enable the company to progress its strategy of international expansion.
 
As the company continues to execute its growth strategy and the stock price reacts in kind, it’s hopeful that we will see the stock trade at a valuation more in line with industry norms. This would mean continued upside for the stock.
 
 

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Aaron Katsman is the lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

Please see our Disclaimer here: http://israelnewsletter.com/disclaimer/

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