Gilat: A Satellite Success Story Waiting to be Discovered

Amiram Levinberg, the new chairman and CEO of Gilat Satellite Networks (Nasdaq: GILT), and one of the company’s founders, was brought back last year after the previous management proved to be an abysmal failure.

The results are obvious. It looks like Levinberg has gathered together an excellent team. So far, he reminds me of NICE Systems (Nasdaq: NICE) CEO Haim Shani when he first started out. The last review of Gilat that I published was in mid-August, after it published its second quarter report. The most noticeable news back then were the big contracts that Gilat won in Brazil, as well as the deal with Cisco Systems Inc. (Nasdaq: CSCO), and the expansion of the management team at SpaceNet.

SpaceNet is Gilat’s global marketing company, which it acquired back in 1998 from telecommunications giant GTE. Acquiring SpaceNet was a splendid move, although it had been largely neglected by the previous management. The company’s marketing operations are now being strengthened by the addition of some top-flight managers. During the second quarter Andreas Georghiou joined the team. He has 25 years management experience in the satellite communications field, beginning with RCA Corporation, then GE Capital and, prior to joining Gilat, SES Americom, the largest satellite communications company in the US. At around the same time, Levinberg brought back Glen Katz as SpaceNet president, after he left together with Levinberg three years ago. Also joining this year is David Myers as senior vice president of marketing and business development. So far, Levinberg has stabilized and positioned Gilat in the same manner as Haim Shani did at NICE.

Note that since the previous management stepped down, Levinberg’s activities have been limited to repair work, streamlining and proper marketing. He has not done anything new nor acquired a new company, but simply managed the company properly, and this may well be just the beginning. The big problem when it comes to Wall Street is Gilat’s past, its bad experience with the previous management, and the fear that the company may have suffered technological harm.

Of course the “Israeli fear” always hovers in the background. But management performance is the crucial issue, and these days, as analysts and telecommunications experts follow the battles between DirecTV Group Inc. (NYSE: DTV) and EchoStar Communications Corp. (Nasdaq:DISH), as well as Rupert Murdoch’s meddling in the industry, there can be no doubting that Gilat’s management will be watched very closely. The entire industry is abuzz with mergers and acquisitions and Gilat quite definitely looks interesting.

This is the stage when the analysts really are important. I call it the ‘identification’ stage. At present, Gilat is being covered by one analyst at investment house Cowen and Company LLC. How does anyone expect institutional investors to return to the company without five or six analysts covering it? I believe this will happen during the coming six months. Gilat is currently priced at a multiple of 15 or 16 for 2007. Accordingly to the figures that are currently available this pricing is not cheap and I suspect that the big buyers right now are actually Israelis who know Levinberg and understand the technology. But Gilat has tremendous potential that lies in the many institutional investors that were once stuck with the stock and will return, if persuaded. As I see it, Gilat has no skeletons in the closet and Levinberg will do just as good a job in leading the company forward as Haim Shani did at NICE.

Published originally by Globes [online], Israel business news - www.globes.co.il © Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.