Ceragon Networks Ltd. (Nasdaq: CRNT; TASE:CRNT) is just one of a number Israeli companies that will be attending the C.E. Unterberg, Towbin Emerging Growth Opportunities Conference opening today at the Mandarin Oriental Hotel in New York. Its managers will tell investors about the strong surge in the wireless backhaul solutions provider's business, a surge that has sent its stock up by 133% since the beginning of the year. It is my hunch, judging by the massive turnover in the stock, that the company has, in recent months, moved from Israeli to American hands. That's what usually happens. We Israelis hang on to a certain stock for years, and once it finally makes the big breakthrough, we say "thank you and good riddance" and sell to the Americans.
Once US institutionals enter the scene, they check out the company thoroughly, and on the basis of these comprehensive assessments of its business, they take it to levels that we never dreamt of, since they're not interested in where it came from, but where it could go from here. I have already been through this once with Check Point Software Technologies Ltd. (Nasdaq: CHKP) back in mid-1999 when the Americans showed us how little we knew, after they eagerly snapped up all the shares the Israelis sold them, long before the bubble imploded.
Incidentally, they can also show us a thing or two when they exit a stock. Once they have identified problems, something they often spot even before management has abandoned its state of self-denial, they account to no one. It is of no interest to them where the stock was when it reached its high, just as its low is of little interest once it has begun to climb. I encountered this in Scitex's first crisis at the beginning of the 1990s, when its owners, Clal Industries and Investments Ltd. (TASE: CII), and Discount Investment Corporation (TASE: DISI) bought a ton of Scitex shares from the Americans at around $30, after they had already plummeted from the $45 high. The stock finally came to a halt at just $10-15.
Returning to Ceragon, the massive infrastructure investments now being made by cellular companies worldwide assure the company of substantial growth over an extended period. I believe, for example, that it will have a share in the $900 million contract that Nokia-Siemens won in India last week. I could also easily see Ceragon joining the list of companies that stand to benefit, indirectly, from the iPhone mania. The only thing that everyone is in agreement about regarding this phone is that surfing with it on the AT&T network rather through a WiFi system is hopeless. There is a very good chance that Ceragon will also contribute to the urgent upgrade that this network will shortly undergo, through its OEM agreements with a number of telecommunications equipment giants.
Lessons of Taro
ClickSoftware Technologies Ltd. (Nasdaq: CKSW), another small company making a presentation at the C.E. Unterberg, Towbin conference, could be up for sale in the near future. The company's stock has gained 16.5% in recent days, and this could not have been solely due to the fact that it has now announced a date for its next report (July 25), and thus spared us the prospect of an unanticipated profit warning. The real reason for the gain could, perhaps, lie in the company’s filings with the US Securities and Exchange Commission (SEC).
Yesterday, ClickSoftware held its annual shareholders meeting, where it was to propose, among other things, a change in the company's articles of association that would allow it in future to pass a resolution for the sale or merger by an ordinary majority of shareholders, rather than the statutory 75% of shareholders present at a meeting. ClickSoftware has not explicitly said that it was in talks for such a sale or merger, but one can safely assume that if the management asked for such a change, then a deal could be in the offing.
It could well be that the case of Taro Pharmaceutical Industries Ltd. (Pink Sheets: TAROF.PK) set off a red light at Click Software, since Taro, as is known, is now embroiled in a bitter battle between its owners and a number of large shareholders over its proposed sale to the Indians. Taro too will need the backing of a 75% majority of its shareholders for the sale. ClickSoftware has two large shareholders who jointly own 22% of the company, and who, if they wished, could easily muster a 25% minority of shareholders to block any sale.
ClickSoftware is a small software company which has been focusing on a niche that has become highly important in recent years - mobile workforce management and service optimization solutions, primarily for organizations that employ large numbers of service staff. Its leading customers include utility companies, particularly those in the US, which purchase software like that of Click Software in order to manage the costs of worker mobility in the face of soaring fuel costs.
Among the companies that are likely, I believe, to make an offer for ClickSoftware are, naturally, Oracle Corp. (Nasdaq: ORCL), the largest player in its field, but also IBM Corp. (NYSE: IBM), with which Click Software has been collaborating. One could even think of hardware companies, such as Cisco Systems Inc. (Nasdaq: CSCO), which, lately has been buying software companies too. Click Software could complement it technologically, in what it describes in principle, as "mobility solutions for large enterprises."
The Eltek engima
Last week, my portfolio was jolted by an unpleasant surprise from Eltek Ltd. (Nasdaq: ELTK). The company does not provide any guidance, does not hold any conference calls, and does not even have any coverage from analysts. The reason for last week's 21% nosedive can be found in the company's SEC filings.
In its 20-F report, filed at the end of June, Eltek reported an large drop in orders from a major customer as from June, a customer who accounted for 17% of the company's first quarter sales of $10.2 million. The customer in question has been switching its products to a newer generation, and as a result Eltek's sales to it will fall significantly in the near future.
On the other hand, Eltek also announced in the same report that it would be investing millions of dollars in ramping up its production capacity, after winning a number of new projects - mostly from foreign customers - which it announced in recent months, and which have higher-than-average profit margins. It is not clear from the report how these two developments will affect the company's results in upcoming quarters.
Given that Eltek is trading at a sales multiple of 0.5 for 2007 as a whole, including the expected downturn, and that its 2008 earnings per share could, I believe, exceed $0.50, meaning an earnings multiple of 7, last week's sell-off was, I feel, totally uncalled for.
Published by Globes [online], Israel business news - www.globes.co.il - on July 10, 2007
© Copyright of Globes Publisher Itonut (1983) Ltd. 2007