NDS Group plc (Nasdaq: NNDS; Euronext:NNDS) is continuing its successful push forward and earlier this week, it recorded an impressive achievement with the winning of a tender from Kabel BW, the leading cable company in the South-western German state of Baden-Wurttemberg. Kabel BW selected NDS’s VideoGuard system to protect its digital cable offering, which secures service revenues of more than $32 billion worldwide, in a field that is only just beginning to develop.
NDS, which has deployed around 70 million smart cards worldwide, is the global leader in the field and in this latest contract win, it beat Swiss company Nagra, which had previously provided services to Kabel. Commenting on the award of the contract to NDS, Kabel managing director technology Uwe Barmann said, “The determining factors for choosing NDS’s VideoGuard were its high level of security and the far-reaching technological perspective of the system.”
This deal is, to the best of my knowledge, the fifth one that NDS has signed since the beginning of February, and the way things look on Main Street (Wall Street is not there yet), the company is set to lead one of the fastest developing niches in the technology world - conditional access solutions for digital content. The UK-Israeli News Corp (NYSE: NWS; ASX: NCP) unit was the subject of a report at the beginning of last month by CNN Money. Editor Paul LaMonica wrote that “Apple Inc. (Nasdaq: AAPL), Cisco Systems Inc. (Nasdaq: CSCO) and TiVo Inc. (Nasdaq: TIVO) are all are trying to establish a presence in your digital living room with cool, innovative technology to help link the computer and TV. And these companies are all widely recognized both on Wall Street and Main Street. But one of the most innovative firms in the lucrative business of digital content is one you've never heard of: NDS Group. And that puzzles some Wall Street analysts, particularly since NDS is a majority-owned subsidiary of News Corp (74%).”
LaMonica then goes on to quote RBC Capital Markets analyst Daniel Meron who says of NDS, “This is an undiscovered gem. It's extremely well positioned in a growth market and has an excellent management team. But few people know of it." Oppenheimer & Co analyst Alan Bezoza explains that "The overhang for investors is that News Corp. owns so much and accounts for so much business.” (which is not entirely accurate, now that News Corp has swapped its stake in DirecTV with Liberty Media).
But NDS’s real advantage, according to Bezoza, is the fact that NDS is not readily known in the US, and that the battle for the DVR set-top box business in the US is not worth fighting since the two leaders Cisco and Motorola Corp. (NYSE: MOT) have turned DVRs into commodities. “There are a whole lot of opportunities outside the U.S and NDS primarily competes with Swiss digital security firm Kudelski,” adds Bezoza.
NDS director of new media and business development David Richardson explains that NDS is actually an infrastructure supplier and that the transaction with Liberty Media should not have an effect on NDS's contract with DirecTV. He concedes that having News Corp. as its top shareholder “sometimes gets in the way of deals” but that this was a problem that the company would be better off with than it would be without. Meron concludes that while “NDS is not a brand name like Motorola or TiVo, if you are a long-term investor, this is a really good stock to own.”
I undoubtedly agree with LaMonica, Meron and Bezoza, and I have made my opinions known about NDS ever since the stock hit the low of $4 four years ago, a fall that was due largely to Rupert Murdoch’s battles with the rest of the wireless world.
Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT) will set up the “Zofit” simulator system in Israel, and it has also won a handsome contract with the US Marines. The first contract, under which Elbit will train Israeli and foreign pilots referred to it by the Ministry of Defense is worth $15 million, while the second, under which Elbit will provide laser-based target identification systems to the marines is worth $51 million.
These sums are small, relative to the volume of Elbit Systems’ revenue, but anyone who realizes where this can lead will not fail to be impressed. As I have said ever since the 9/11 terror attacks, Elbit Systems, thanks to its management and Israeli know-how in smart defense electronics, is an investment about which I cannot make any predictions as to how long its superior value will last.
Published by Globes [online], Israel business news - www.globes.co.il - on March 1, 2007
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