Defense stocks worldwide have benefitted over the past week from Russia's invasion of Ukraine as countries, especially in Europe, are expected to increase their defense budgets.
Elbit Systems Ltd. (Nasdaq: ESLT; TASE:ESLT) has been the most prominent beneficiary of the Israeli defense companies, with its share price up sharply this week, and its market cap fast approaching $10 billion.
Another Israeli defense company faring well is RADA Electronic Industries Ltd. (Nasdaq: RADA; TASE: RADA). The share price of the radar and avionics solutions company has risen 2,500% over the past six years and after rising 2.55% on Nasdaq yesterday has a market cap of $656.56 million.
Sources close to the matter have informed "Globes" that RADA could be up for sale after last year the company hired an investment bank to explore its options. In response RADA's active chairman Yossi Ben-Shalom told "Globes" that he cannot relate to the matter and added, "RADA is a company that is doing well, is engaged in thriving markets, certainly these days, and everybody can think what they want." The company spokesperson declined to comment.
RADA is a veteran company, which provides avionics solutions. More than a decade ago it began manufacturing and marketing radar for tactical and operational missions. The company's mini-tactical radar are mounted on armored vehicles for active military protection, counter-drone applications, infrastructure protection and border surveillance. At the same time RADA continues to operate in its traditional avionics sector.
Not yet realized its market potential
In 2021, RADA's revenue grew 54% from 2020 to $117 million with adjusted EBITDA of $27.3 million, up from $9.7 million in 2020. EBITDA margins expanded significantly from 13% to 23%.
Six weeks ago RADA held an investors conference in which it presented its long-term growth strategy. The company expects $140 million revenue in 2022, up 20% from 2021 and set itself an annual revenue target of $250 million within the next three to four years - doubling its 2021 revenue.
From 2023, the company sees sales of its active protection systems (APS) making a major contribution to revenue. Before then, this year revenue will be generated from its systems for the short range air defense (SHORAD) market and Point Defense for protecting infrastructures and bases.
With strong revenue growth, and having not yet realized its full potential in a flourishing market, would all make RADA an interesting target for a buyer.
DBSI spotted an opportunity
RADA's situation today is a far cry from its plight in 2016 when it was mired in a liquidity crisis that significantly restricted its activities. Yossi Ben-Shalom's private investment company DBSI spotted an opportunity and acquired control of the company for an initial investment of $4 million and further investment over the years of less than $13 million.
The first shares were bought for less than $0.05 (adjusted to the capital consolidation that was carried out back then). DBSI led a streamlining process and added value together with the CEO that it recruited Dov Sella. RADA's share price jumped sharply following these measures to a peak of $14.40 last year and currently stand at $13.29 - returns of 2,600% since 2016.
At the start of 2021, RADA's shares were dual listed on the Tel Aviv Stock Exchange (TASE). DBSI took advantage of the company's peak share price and sold a stake worth almost $80 million. At the end of May 2021, DBSI was no longer a party of interest in the defense electronics company after its stake fell to about 4%, worth then about $23 million. In other words, DBSI achieved seven-fold returns on its investment in RADA.
Even though DBSI is no longer a party in interest, Ben-Shalom remains the company's active chairman. If RADA is successfully sold then it would be a repeat of the feat that Ben-Shalom accomplished at 3D digital fabrication software provider Cimatron, which was acquired by 3D Systems for $97 million. DBSI, which had been the controlling shareholder in Cimatron, had sold its stake at a profit before the acquisition, although Ben-Shalom remained as chairman until the sale was completed.
RADA currently has no controlling shareholder with institutional investors holding major stakes including Israel Phoenix Assurance Ltd. (TASE:PHOE1; PHOE5) (8.6%), Wellington Management (6.7%) and Franklin Templeton (6%).
Published by Globes, Israel business news - en.globes.co.il - on March 3, 2022.
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