A recent edition of the Israel Newsletter featured LanderNorth Asset Management's Jack Gecovich. Key excerpts, including his Israel stock picks, follow:
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 US 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 US. 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 a few 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 prerelational mainframe databases to relational databases (IBM DB2, Microso. 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 commi.ee was RRSat Global Communications Network Ltd. (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 US to capture market share. RRSat currently offers high-quality and flexible global distribution services for content providers including 295 TV 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 US 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?
JG: We watch a number of Israeli companies that would be a possible fit into our strategy. They must meet a few minimum requirements, one being not larger than $2.5 billion in market cap. A name that we have done quite a bit of work on is G. Willi Food-International Ltd. (NASDAQ: WILC). I met with the management team back in February of 2007. They are primarily a food distributor looking to gain traction in the US with some of their specialty items. I am waiting on the sideline on this one as I question the true market opportunity for their products here in the US. Another name I recently started doing some work on is Tefron Ltd. (NYSE:TFR).