Formula Systems Overview
February 23, 2005 - Copyright by Morris Rosenthal - - contact info
Company Overviews
Copyright 2005 by Morris Rosenthal
All Rights Reserved
Notes on trading FORTY stock for investing in Israeli stocks
A going concern since 1985, Formula Systems is based in Hertzlia, Israel. Formula Systems is essentially a holding company which owns majority positions in five publicly traded Israeli high-tech companies, and is the sole owner of the private firm nextSource. Formula Systems trades on the NASDAQ as FORTY and on the TASE as FORT. The primary products of these companies are software integration services and consulting. The Formula CEO, Dan Goldstein, is the largest single shareholder with a little over 18% of the shares. There is essentially no ownership by U.S. institutional investors, but Bank Leumi (Israel) owns a little over 7.5% at the start of this year. Company insiders own another 21.5% of the shares. The president of Formula, Gad Goldstein, is the brother of Dan Goldstein. Both men are directors in a number of the Israeli company's partially owned by Formula:
| Company Name | Formula's stake | Value (2/23/05) | NASDAQ Symbol | TASE Symbol |
| Matrix IT | 72% | $77.8 million | Not Listed | MTRX |
| Formula Vision | 59% | $36.3 million | Not Listed | FVT |
| BluePhoenix Solutions | 59% | $34.7 million | BPHX | BPHX |
| Magic Software Enterprises | 52% | $49.2 million | MGIC | MGIC |
| Sapiens International | 52% | $16.1 million | SPNS | SPNS |
Using the numbers above, we find that Formula owns stakes in publicly traded companies worth $214 million, while Formula's own market cap is only $182.7 million, and which ignores any value in the wholly owned subsidiary. Guess I'd better check my math:-) Either that, or it's one weird arbitrage opportunity.
Formula came public in August 1997 at just over $30 (a very popular IPO price over the years), and rode a wave of enthusiasm for Israeli tech stocks during the bubble up to a high of over $80 in early 2000. Since then FORTY has traded as low as the high single-digits, but has been range bound in the high teens for the past year and a half. Formula Systems has yet to release it's FY 2004 results, still waiting on releases from all of it's holdings. All three of the holdings traded on the NASDAQ have reported their FY 2004 results. The best P/E of the bunch belongs to BluePhoenix, trading at a multiple of just over 20, but considering that revenue was only up 5% year-over-year, the current valuation might be a little rich. MagicSoftware reported stronger sales growth, up 33% over 2003, but modest earnings of $0.13 cents leave it with a P/E of just under 24. Sapiens International was the real disappointment of the group, with losses across the boards.The operating loss climbed to $1.7 million in 2004, up from $1.0 million in 2003, total revenues fell 9% year-over-year to under $48 million, and perhaps the worst sign of all was gross margins declining 3.2% to 42.1%. A write-off of $900,000 in software development costs didn't help any.
I'll get back to these notes when Formula releases their annual report.
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