Written by: Aaron Katsman | June 4, 2007
By Aaron Katsman
www.IsraelNewsletter.com
This weekend’s news of the FBI foiling a terror plot to blow up JFK airport has again thrust the issue of homeland security into the headlines.
Magal Security Systems (MAGS) is a trailblazer that develops security systems to detect and deter human intrusion for both civilian and military markets. Magal specializes in securing all types of sensitive areas, and today announced a $1.8 million deal to help secure the Ashdod Port as well as a border crossing terminal, both in Israel. Magal is a global company with product installations in over 70 countries, protecting borders, airports, prisons, even nuclear power plants, against both theft and terrorism.
The company has started to realize its potential and the proof is in Q1 numbers. Revenue increased 12% over the comparable quarter in ’06 and net income rose to $298,000, or 3 cents per share, from $149,000, or 1 cent per share, a year earlier. What makes these numbers even more impressive is that expenses almost doubled over last year’s numbers due to the strength in the Israeli shekel. As I have mentioned previously, I believe that we are going to see the US dollar start to strengthen against the Shekel. This will give an added boost to Magal’s numbers. Keep in mind that the 1st quarter has been traditionally the weakest for the company, and the outlook looks promising. In addition, the company forecasted that full year results will be ahead of last years in all respects.
Magal should be looked at not just as a play in the event of a terrorist attack, but on its own merits. Fundamentally, the company has begun executing the business model, and is an intriguing investment for the long term.
(Corrected as of 6/6/07)
Disclosure: Author’s fund is long MAGS as of 6/04/07.
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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.
Written by: Zack Miller | June 4, 2007
Reuters out with a story that Google is opening (has opened?) a 2nd R&D facility in Tel Aviv, Israel. Joining greats like Intel and Microsoft, the Google Train rolls big time into the country to tap some of the best programmers in the world.
In addition to the Haifa-based-20-member team and a sales office in Tel Aviv of about 15, Google (GOOG) Tel Aviv has about 30 employees currently and is headed by Yossi Matias, who Reuters describes as ” a scientist and expert on algorithms, databases and Internet technologies.”
I found a biography on Matias here. Pretty heavy hitter — he holds over 20 US patents, won the 2005 Goedel Prize for “The space complexity of approximating the frequency moments,” Journal of Computer and System Sciences 58 (1999), 137-147, first presented at the 28th ACM Symposium on Theory of Computing, 1996.”, and maintains a pretty eclectic taste in music.
This center is one of ten global R&D facilities Google runs in Europe, Africa and the Middle East.
We’ve thought it was about time that global leaders in Web technologies set up shop here. Tel Aviv U. and Technion have long put out leading scientists working on large databases, machine learning, and complex algorithms.
It looks like our suggestions have finally been GOOGLED!
Written by: Zack Miller | June 4, 2007
Haaretz article predicting layoffs at Comverse (CMVT.PK). This would equate to about 5% of its total workforce.
Bankers betting on Teva (TEVA) beating Novartis (NVS) on the Lotrel dispute. Read the Haaretz article and what our analysts have to say about the issue.
Answers.com (ANSW) named a finalist in the Webware 100 Awards by CNET Webware Editors and Web 2.0 User Community. Read Israel Newsletter’s recent article on Answers.com.
Amdocs (DOX) wins deal from Kazakhstan’s largest telecom operator, Kazakhtelecom. Implementation should include Amdocs Charging 7 and Amdocs Service Mediation Manager 7.
TA-25 Index rises to another record yesterday after gaining .6 percent and closing at 1,132.57.
Globes reporting that a subsidiary of Orckit (ORCT) revealed at a trade show in Germany that Deutsche Telecom may make a decision in the new future to build out a system based on Orckit technology. Orckit is looking to add additional customers to its roster to augment its only existing customer, Japan’s KDDI.
Written by: Zack Miller | June 3, 2007
By Zack Miller
IsraelNewsletter.com
This Friday, JPMorgan initiated coverage on Ness Technologies (NSTC) with an Overweight rating. Ness Technologies is a global provider of IT services and generates almost 50% of its revenues within Israel.
NSTC competes locally in Israel with companies like Malam, Matrix, Elbit (see our previous articles on Elbit), and Teldo. Ness also competes against multinational firms like Accenture, BearingPOint, CSC, EDS, IBM, and HP. Their offshore development group competes against Cognizant, TCS, Infosys, Wipro. They also compete against product development firms (think Persistent Systems) and against internal IT departments of potential clients.
JPMorgan enumerates 4 reasons why NSTC is poised for growth:
- Penetrate North America and Emerging Markets: JPMorgan cites that 40% of global IT spending is spent in North America. Ness recognizes this opportunity and is looking to penetrate specific niche areas (like product development) which align with its existing domain expertise. NSTC is also focused on building out its presence in emerging markets like Eastern Europe and Asia. Having almost 50% geographic exposure to Israel has always been an issue surrounding Ness — it appears that NSTC is serious about diversifying its revenues globally.
- Maintain Leadership Position in Key Verticals: JPMorgan is encouraged with NSTC’s leadership position in defense and government verticals in Israel and in Independent Software Vendors in the US. NSTC can leverage these leadership positions to expand geographically and build competencies in other verticals. Ness and Israel are on the cutting-edge of defense technologies and certainly can parlay this experience into competing for US Department of Homeland Security spending dollars.
- Maintain Long-Term Client Relationships and Build Out Offshore Presence: Ness is attempting to lock-in customers into longer-term relationships, representing a more annuity-type revenue stream. JPMorgan cites that repeat clients represent 85% of the company’s revenue in Q107. The banking firm is also encouraged by Ness’ focus on building-out its low-cost delivery capabilities, particularly in India and Eastern Europe. This will take the lumpiness out of NSTC’s revenues and allow Ness to pursue lumpy contract work for the US Department of Homeland Security.
- Pursue Strategic Acquisitions: So far, Ness has pursued small tuck-in type acquisitions to build delivery competence, penetrate new geographies, or expand its service line/industry vertical capabilities. JPMorgan expects the company to continue along this path.
That said, all is not clear sailing for Ness. JPMorgan expects a soft second quarter due to Jewish holidays in Israel, some coninued weakness in US and India business. Down from a high of 17 in late ‘06, NSTC hasn’t performed well in 2007. Margins may be compressed in the near future (due to Rupee appreciation and Israeli commercial biz) and need to trend higher for investors to start feeling more comfortable in the stock.
JPMorgan likes the stock for investors seeking one of the best Israeli IT companies expanding internationally with good Free Cash Flow and a strong balance sheet (A 35% increase in backlog probably helps as well).
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Disclosure: Author’s fund is long NSTC as of 6/1/07.
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