IOI’s Zack Miller and Aaron Katsman were interviewed by CNBC’s Squawk Box. CNBC is here in Israel celebrating Israel’s 60th Birthday. See the video here.
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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%.
Not wanting to be remiss in giving an update on Israel Opportunity Investor portfolio member, Alvarion (Nasdaq: ALVR), we want to chime in with our two cents. We’ve been positive on the stock and have seen our thesis — that of further global uptake of fixed mobile services — came to fruition and even surpass what we were expecting. This is a critical lesson for investors: while stocks may perform financially as planned, how they trade is another matter.
We’ve seen the stock essentially pulverized by fear of weak global markets. Telecom spending typically gets pushed out during turbulent times.
That said, Alvarion’s not seeing that yet. In fact, while we continue to think the stock has a lot going for it, we are sensing a rising sense of negativity on the stock, driving it down off of what was ultimately a good reporting season and not too bad guidance in the headwinds of a weak dollar.
An article ran in SmallCapInvestor last week after Alvarion announced earnings and looked at how analysts were sizing up ALVR’s results. The way I read the results and how Susquehanna addressed them?
What many investors and even analysts don’t appreciate is that the dollar has fallen like a rock versus the Israeli shekel. Israeli firms like Alvarion that trade in the US and are priced in dollars but conduct R&D/production in Israel are all feeling a squeeze. We’ve heard this from numerous Israeli CEOs. When the time comes that the dollar ultimately strengthens against the shekel, we’ll see a natural reversal in these numbers. My point here is that when numbers like this are clearly attributed to fluctuations in the dollar, earnings gains/misses are not organic changes in the business model.
This same analyst report that SmallCapInvestor disparaged actually comes out pretty positive on Alvarion. Susquehanna likes the Q4 surprise, likes the WiMAX opportunity, and Alvarion’s stable of international customers. Long term investors in Israeli stocks trading in the US will find it somewhat funny to think that a particularly strong shekel is weighing on earnings.
Disclosure: Author’s fund holds a position in ALVR and is long the stock as of 2/8/08.
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Someone called us recently to ask about a newish ETF called the SPDR Emerging Middle East & Africa (Amex: GAF). The ETF
is heavily weighted around three countries — South Africa (65%), Israel (17%) and Egypt (6%).
There are other ETFs that include exposure to Israel but as far as we know, this ETF currently has the largest exposure.
Israel as a destination
We like Israel (but hey, we’re biased). While Israel is not putting up double-digit GDP growth like China, we are seeing close to 4-5%.
Not too shabby.
Foreign capital is flowing
We’re continuing to see money coming into Israel looking for a home. Canaan Partners just announced another fund that will be targeting opportunities in Israel.
Can Israel do better?
And if you ask Netanyahu [subscription required], we could see close to 8%, if certain pro-market policies are put into place. Even Netanyahu’s detractors credit his cuts in welfare benefits, the removal of remaining currency and capital controls, and liberalization of the banking sector as cutting the way for an amazing economic recovery.
Check out Eze Vidra’s post, “Israel 2008: What the Bulls and the Bears are saying“, for some good forecasts of what various analysts are looking for from the Israeli economy in 2008.
What does the ETF hold?
Check out the GAF’s holdings. What you’ll see is that Israel’s 11% weighting is driven by the fact that Teva Pharmaceuticals (Nasdaq: TEVA) is the ETF’s largest holding at over a whopping 9%. We then see Israel Chemical (2%), Bank Leumi (1.43%) and Bank Hapoalim (1.41%). Elbit Systems (Nasdaq: ESLT) is also in there (1.06%). The rest of the Israel holdings each account for less than 1% of the SPDR Emerging Middle East & Africa Fund.
Investors in Israel from abroad may like the fact that this fund holds locally traded companies that aren’t dually listed or carry a corresponding ADR in the US.
So, what’s an investor interested in Israel to do?
That said, 17% of a fund that has exposure to really different economies may not be enough for foreign investors looking to trade locally-traded Israeli shares. Also, TEVA’s weighting at 9% of the overall fund means that Teva alone accounts for over 50% of the total Israeli exposure.
Teva may be a great company but it’s not indicative of the Israeli market as a whole. I’d like to see more exposure to Israel Chemicals, the Israeli banks, Bezeq, 012.Smile (Nasdaq: SMLC), the Mobile phone carries including Partner (Nasdaq: PTNR) and Cellcom (NYSE: CEL), let alone all the newer, smaller, tech firms listed locally.
What about mobile fixed telecom players like Alvarion (Nasdaq: ALVR) and Ceragon (Nasdaq: CRNT)? Both have taken a worse beating than Britney has received from the paparazzi.
I’d like to see a country ETF also include local retailers like Blue Square-Israel (NYSE: BSI)
Israel investors may be better off weighting for new offerings in the works as we hear that Barclays and another firm has an Israel ETF in registration.
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NEW! Introducing Israel Opportunity Investor, our monthly subscription-only newsletter. Stay ahead of the game and make smart decisions in Israel stocks. Go here to learn more.