Written by: Aaron Katsman | June 11, 2007
By Aaron Katsman
www.IsraelNewsletter.com
In a much anticipated decsion, a U.S. District court for New Jersey denied a Novartis(NVS) motion for a preliminary injunction against Teva(TEVA) selling its generic version of Lotrel, a blood pressure treatment drug. In reaching its opinion, the court found that Novartis was not likely to succeed in its allegations of patent infringement, Teva said. Teva announced that they will resume shipping their generic version immediately. Sales of Lotrel were approximately $1.4 billion in the U.S. This is no small victory for TEVA. Analysts think that this drug can add between $180-$210 million to sales or about 9-12 cents a share, and coupled with the rest of the pipeline, Teva looks poised to be a market leader for some time. As I posted a few weeks ago, the feeling was that Teva would win the case, and indeed they did. This clearly is another in a long line of blows that have been dealt to Big-Pharma, a trend that I expect to continue for the foreseeable future.
Disclosure: Author’s fund is long TEVA as of 6/11/07.
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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: Aaron Katsman | June 11, 2007
By Aaron Katsman
www.IsraelNewsletter.com
As predicted in a post 2 weeks ago, there has been an announcement of consolidation in the Business Intelligence (BI) field. Today’s announcement of IBM’s purchase of the Swedish company Telelogic for $745 million is evidence of continuing M&A momentum in the BI space.
BI systems help companies achieve a more in depth undertsanding of factors within their business, such as metrics on sales, production, and internal operations, all which help companies in making more well informed decisions.
It’s important to note that investing in BI companies is not about trying to pick the next takeover target; rather, it’s a play on the strong growth the industry is in the midst of. One of the compnanies I mentioned as a takeover target is the Israeli company, Retalix (RTLX). Retalix automates and synchronizes retail, distribution, and supply chain operations for stores, headquarters, and warehouses. They have been rumored to be a buy-out target by either SAP or Oracle for some time. Today they announced a deal with China’s HomeBuy Houseware, one of China’s largest and fastest growing do-it-yourself and home furnishing retailers. “The on-line synchronization between Retalix’s point-of-sale solution and the headquaters, loyalty and promotions management system, enables us to respond faster to customers’ expectations and thus improve customer retention and satisfaction levels,” said Lorence Ye, Operations Director of HomeBuy. It’s important to note that this is needed to improve customer service. It’s clear that this is solution is more and more in demand, giving credibility to the theory that this may be the fastest growing space in software. As for Retalix, this is a huge win, because they have successfully penetrated the traditionally hard-to-penetrate Chinese market. “Our partnership with HomeBuy is an important step in the implementation of our strategy to expand our business in China,” said Barry Shaked, president and CEO of Retalix.
Regardless of whether Retalix gets taken over, it’s an intriguing investment in a rapidly growing space.
Disclosure: Author’s fund is long RTLX as of 6/11/07. He does not hold positions in the other companies listed.
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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 11, 2007
In a follow-up to our own Aaron Katsman’s article last week on the weakness of the dollar versus the shekel and the dollar’s subsequent bounce-back of over 6%, I’ve been thinking on how to play the apparent weakness. (For a strong backgrounder-type piece, Gary Dorsch had a great article on SeekingAlpha giving a great overview on the macroeconomic drivers behind what’s going on in the movement of the dollar/shekel.)
I think Katsman said it succinctly when he anticipated the recent strengthening of the dollar:
“…this Dollar strength has been anticipated, as the Bank of Israel has been doing whatever they can in trying to talk up the Dollar. The BOI has been lowering interest rates, but many analysts feel that they can cut no more. Officially, Israel has been experiencing little to no inflation over the last 12 months, but that is deceiving. The Dollar is a major component in inflation calculations, so the weakness in it has skewed the numbers to next to nothing. Morgan Stanley analyst Serhan Cevik warned that under the radar, inflation is there and it’s strong, running at 4% once linkage to the dollar is weeded out. He counseled the Bank of Israel, not that it asked, to stop lowering interest rates.”
General wisdom has it that exporters (from Israel) benefit from a stronger dollar, unlike companies with highly-leveraged balanced sheets (i.e. lots of debt).
So… here’s what ClalFinance had to say in a note to investors regarding some of the stocks we’re following here at IsraelNewsletter:
Teva (TEVA): main impact is on the share price denominated in shekels. TEVA’s shares start the week in Tel Aviv trading .6% higher than the US-listed stock.
Ormat (ORA): on the face of it, a highly-favorable effect for ORA: a company in the dollar-zone, whose shares trade in US dollars. Also, a good G-8 meeting.
Partner (PTNR): negatives for equipment costs and future debt raising. Another negative comes from the Ministry of Communication decision to shorten cellular companies’ contracts with customers, from 3 years to 1 year.
Perrigo (PRGO): Updraft for shekel-denominated shares.
NICE (NICE): Two positives: increased margins from overseas operations and higher yields for its cash holdings (about $163MM)
Elbit Systems (ESLT): helps out margins. The company has minimal debt, despite the Tadiran acquisition. Nevertheless, Q2 will still suffer from dollar fluctuations.
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Zack Miller is the lead equity analyst for America Israel Investment Associates, LLC. and a former equity analyst for a leading multinational hedge fund. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email zack@profile-financial.com
Written by: Zack Miller | June 10, 2007
IsraelNewsletter’s Aaron Katsman had a GREAT call last month on not puking Radware (RDWR) right before it made Morningstar’s Three Small-Cap Stocks for a Slugger’s Portfolio. Since he’d held it, Radware has named a new executive Chairman, gone up almost 14%, and received a CIBC Oppenheimer upgrade.
Is this just good decision making or me giving our star portfolio manager some much-needed love?
I think it’s the former — I’d like to posit that Aaron’s original thesis for owning it was correct — that things may have started to really turn around at the consummate “turn-around” story: Radware.
First, let’s air the dirty laundry:
Radware has missed street estimates 5 quarters in a row. To be blunt, management hasn’t given the street a lot to work with.
That said, they’ve been working on restructuring their US sales effort and we at IsraelNewsletter, in addition to CIBC Oppenheimer, cite this strengthening of their sales efforts and the gaining traction of their products as a reason to revisit this play.
Over the past year, Radware has eliminated its Israel-based sales team and has bolstered their US efforts with senior executives from ATT (T) and F5 (FFIV).
CIBC Oppenheimer cites:
“On the product front, Radware’s Application Switch 4 (AS4) and Application
Switch 5 (AS5) platforms continue to perform well. Successful traction of the
AS4 and AS5 platforms is critical, as they allow the company to
participate in key growth markets (large data centers, carriers), which
should help support upside longer term.”
On a valuation basis, we like the metrics — it’s cheap. The main thing we’ve struggled with (along with the Street) was figuring out whether Radware was cheap for a reason.
CIBC puts a 2.0x EV/2008 sales multiple on RDWR (a discount to the median 3.2x
multiple for Radware’s peers).
From the CIBC upgrade, we also like:
- Cash per share is $8.15, or roughly 60% of RDWR’s market value.
- Discounting the effect of its recent M&A activity, the company has remained profitable. As a result, we see the core business as a profitable one.
- With a strong install base and decent market share in the high growth Layer4-7 application switch market, Radware could be an attractive acquisition target, in our opinion.
So, it seems Katsman was prescient in his RDWR long and the sales restructuring is beginning to take root. Both he and Radware deserve the love.
Disclosure: Author’s fund is long RDWR as of 6/10/07.
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