After the first quarter of 2012 has been sent with loud acclaim to a place of highest honor in the statistical history of Wall Street, on account of the huge profits it yielded for investors, the market's big test comes next week with the start of the reporting season, expectations of which have soared in line with the soaring returns. Profit warnings that will surely be published here and there will start affecting the market's direction this week, for last quarter wasn't a party for everyone.
In the portfolio tracked here, I am unloading Radvision Ltd. (Nasdaq: RVSN; TASE: RVSN), which will soon become a division of privately-held Avaya, and half of the shares in Apple (AAPL), after they have yielded the fantastic return of 558% in five years. With part of the money I am buying for the portfolio a small Israeli company, OTI - On Track Innovations Ltd. (Nasdaq: OTIV; DAX: OT5), at a price per share that is about a tenth of what it was exactly six years ago, when I removed it from the portfolio at a price of $15.
I became aware of On Track again last Tuesday, when CNBC reported on a small Israeli company that was suing the fourth largest mobile company in the US, T-Mobile, a subsidiary of Deutsche Telekom (DT). On Track, from Rosh Pina, specializes in digital solutions for contactless identification and payments. It claims that T-Mobile's handsets containing NFC (near field communications) payment solutions infringe one of its patents.
Patents as a revenue source
People generally deride claims by tiny companies that make nuisances of themselves to giant companies with patent infringement lawsuits, but I wouldn't dismiss On Track's chances out of hand, because it is one of the pioneers of the field, and was so long before NFC became a buzz concept in cell phone payments. Six years ago, when I last held On Track in my portfolio, I wrote about a field trial that the company carried out with leading credit card companies, using Nokia (NOK) telephones, at a time when Nokia was at its peak.
On Track has more than 100 patents and patent applications all over the world in all the niches in which it is active, including the hot niche of NFC. The lawsuit against T-Mobile was apparently filed after the company made the strategic decision last year to leverage its patent portfolio as a source of revenue. A large licensing agreement was announced in the final quarter of 2011, under which "a multibillion dollar corporation" paid On Track $7 million for the non-exclusive use of some of its patents.
2012 is likely to be a very interesting year for investors in On Track, who are extremely frustrated, since it has not made money in a single one of the ten years since its IPO. The company has nonetheless always managed to raise money at high prices, the last round, of $18 million a year ago, having taken place at a price per share of $3, which compares with a market price of $1.65 today. Besides the abovementioned lawsuit, which was filed after careful examination, On Track has become the target of hostile takeover bids by at least two US investment institutions, which are acting separately but which together hold about 22% of the company. Each filed a 13D report indicating that it planned to influence the ownership of the company.
Attractive for takeover
On Track Innovations was founded by Oded Bashan, a former kibbutznik from Kfar Blum, who now runs the company in the Hazor industrial zone. His son Ohad manages the US subsidiary. However, the family owns less than 10% of the shares, so that, at least on paper, the takeover threat exists. The company adopted a "poison pill" strategy, whereby shares are distributed to existing investors in the event of a real threat, but failed to obtain approval for increasing the number of shares at a shareholders meeting two weeks ago, so that, for the time being, the pill lacks poison.
On Track currently has a market cap of $53 million, and around $20 million net cash. Paradoxically, the lawsuit it filed against T-Mobile is actually likely to encourage takeover bids, because if there is substance to the claim, the bidders will redouble their efforts.
In the financials it released in early March, the company gave disappointing guidance for 2012; at best it will break even this year. However, as I say, investors will be focusing on two matters that have nothing to do with the day to day running of the company, and that have very high potential: the lawsuit, and the takeover attempts.
Published by Globes [online], Israel business news - www.globes-online.com - on April 2, 2012
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