Lots of Israeli companies reporting earnings. Here are some highlights:
Perrigo (PRGO): Tightened up 2008 guidance higher and beat revenues projections. Earnings release here. Early look at the stock is that investors aren’t impressed. See our recent commentary on PRGO’s generic nicotine gum.
Teva Pharmaceuticals (TEVA): Earnings report here. Quarter over quarter growth looks to be 24% and profit down from CoGenesys charge.
RRSat (RRST): Smacked yesterday after an earnings release. The 20% drop came after putting up pretty good top lines numbers. Margins came down quite a bit.
Alvarion (ALVR): Stock popped after the wireless backhaul firm put up pretty good revenue numbers and a narrower loss. The stock jumped 15%. Earnings report here. See our analysis of the recent turbulence in the wireless market.
Ness Technologies (NSTC): Revenues up 27% year-over-year and earnings up 20%. Earnings report here.
Partner Communications (PTNR): Earnings report here. Total revenues up 12% and Net Income up 24%.
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Can you tell us a bit about your firm?
Jack Gecovich: LanderNorth Asset Management, LLC is a Registered Investment Advisor founded in 2003 and based in Beachwood (suburb of Cleveland), Ohio. The firm offers a small cap separate account strategy to Institutions, Trusts, Foundations, Endowments, and High Net Worth Clients.
LanderNorth differentiates itself from other small cap managers in that the investment team has extensive private equity experience. LanderNorth applies private equity-like due diligence to small public companies that are substantially overlooked and undervalued by institutional investors. The investment team works in tandem with a private equity growth buy-out firm and applies private equity due diligence to publicly traded companies. The principals of the firm have over seventy-five years of collective asset management experience and rely on a combination of external and internal research in the construction of client portfolios.
The Strategy benefits from its investment team’s proven track record in both small cap public stock investing and private equity investing. The team follows a GARP (growth at a reasonable price) philosophy and looks for solid, fundamentally sound growth companies that are trading at reasonable valuation levels.
How does a firm located in Beachwood, OH, come to start investing in Israeli companies?
JG: Here in Beachwood, Ohio we benefit from our local government recognizing the vitality of Israel’s economy and Israeli innovation. In an effort to attract Israeli companies and have them consider Beachwood as their US based operation, the city has taken a number of steps in making Beachwood a real option, including offering assistance for office locations and recruiting services for professional & support staff. The state of Ohio has also revised their tax code to make it easier for small companies to set up shop.
As a result, LanderNorth has had the fortune of meeting with a number of Israel based companies. Meeting with these companies helps us understand the landscape in Israel and what the real opportunities are here in the U.S. for Israeli based companies. Utilizing our private equity experience we are able to recognize what it takes for a small company to grow and make a presence here in the U.S.
One of the themes of our small cap strategy is to find undervalued companies that are not only growing in their local economy, but are able to create a world wide market share for their product or service. Finding opportunities in Israel is a great example – not only is their local economy healthy but the companies we look at are expanding their market presence overseas.
Can you tell us about some of your Israeli holdings?
JG: BluePhoenix (Nasdaq: BPHX), an Israeli based IT company is one of our largest holdings today. We initially discovered this story back in November 2006 when the CEO of the company Arik Kilman visited our offices here in Beachwood. BluePhoenix provides solutions for IT modernization, primarily helping companies move off pre-relational mainframe databases to relational databases (IBM DB2, Microsoft SQL Server, Oracle). The US market alone represents around three thousand potential clients and the value of the market is estimated at $9 billion by 2009. Some sample clients include Merrill Lynch (financial), AFLAC (insurance), Ford (automotive), and the Illinois Secretary of State (government).
The stock has had quite a run. Are you planning to keep holding it?
JG: BluePhoenix has gained more than 200% since late 2006. We believe that this company is still just being discovered and the market potential remains attractive. We have a well defined sell discipline that includes maintaining price targets and keeping a close eye on fundamentals. Neither of these aspects of our sell discipline are currently at risk and we continue to remain very positive on the name.
What else do you hold?
JG: Another Israel based company that was recently presented to our investment committee was RRSat Global Communications Network (Nasdaq: RRST). They provide global, comprehensive content management and distribution services to television and radio broadcasting industries. Here is another great example of a proven business model that is working well in Israel and they are looking to bring their expertise and technology to the U.S. to capture market share. RRSat currently offers high-quality and flexible global distribution services for content providers including 295 TV shows and 80 radio stations worldwide. Given their unique elevated geographic location in southern Israel, RRSat is able to offer this service cheaper than competitors. They are looking for a US based partner and should have that in place by the beginning of 2008. A few of their major customers include Fox News, NBC News, CBS, NTV Russia, Turkish Radio & TV, etc.
Is there a big market for this in the US?
JG: The market potential in the U.S. is large and growing as most of the larger media companies want to outsource this type of activity. Another catalyst for growth is the US mandate that will require all analog TV broadcasts to be replaced with high definition TV by 2009. Not only will this create a new opportunity for RRSat, but this also creates a cross sell opportunity to existing customers.
Are there any companies that you are considering taking a position in?
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In a note published on April 13th, William Blair reiterated their outperform rating on RRSat (RRST), a global communications company that provides content services to the television and radio broadcasting industries. Having just IPOd in late 2006, the stock has kind of gyrated over the past few months.
William Blair cites “the continued global proliferation of entertainment content should provide solid demand for RR’s content distribution and value-added services. The number of worldwide television channels is forecasted to grow at a 13% CAGR from 2005 to 2012. As one of only two distribution service providers with an end-to-end, global distribution network, we believe RR is well positioned to capitalized on these trends.”
RR now has contracts with over 285 television channels and more than 80 radio channels, and has never lost a customer to attrition.
It’s early in the story — let’s keep an eye on this one.
