While the public at large may not have heard of NextVision Stabilized Systems (TASE: NXSN), which develops stabilized cameras for ground and aerial vehicles, Tel Aviv Stock Exchange (TASE) investors know the company well.
NextVision is an exceptional success story. The growth company is profitable, distributes dividends and since its IPO has yielded investors dream returns of nearly 800%, exceeding the market cap of major companies like Rami Levy, Cellcom and Isracard. Trading at a market cap of NIS 3.7 billion (over $1 billion), some wonder whether NextVision, benefitting from the boom in the world's defense industry, is overvalued.
Ra'anana-based NextVision develops and manufactures stabilized day and night cameras for ground and aerial vehicles, such as drones. It has developed an image stabilization engine for even difficult flight conditions, which includes the possibility of zooming in while in motion. Customers include suppliers in the defense and civil sectors, who sell products onto end-customers.
NextVision was founded15 years ago and held its TASE IPO in June 2021, in the midst of a wave of flotations that brought over 100 new companies to the TASE, mainly with innovative but loss-making tech activities. Most of these companies saw their share collapse, sometimes losing almost all of their value, while destroying enormous value for investors. Some have since gone bankrupt, sold their operations or been delisted.
But NextVision has provided a completely different story, with returns of nearly 800% since its IPO and it is listed on the Tel Aviv 125 Index. This has benefited investors, in particular the company's founders and managers - chairman Chen Golan, CEO Michael Grossman, CTO Boris Kipnis, and veteran investors such as Yosef Sandler and Gen. (res.) Amiram Levin. These investors have already managed to exercise some of their holdings as the company's market cap increased by hundreds of millions of shekels, while they remain with shares worth over a billion shekels.
The rise in the share price took place as the company's revenue grew rapidly, by 70% annually, realizing the forecasts in its IPO prospectus. Next Vision continues to expect growth at a similar rate in the coming year, significantly higher than the 20%-30% "only" in the market in which it operates. "The company is actually experiencing an increase in demand for the solution it provides to its customers in all areas, and also expects continued interest in its products," Next Vision said.
Growing with the war
The rapid growth has accelerated, the company's data shows, since the outbreak of the Russia-Ukraine war two years ago and the understanding by western countries of the need for technological solutions that "allow the saving of human life," as part of their increased defense budgets.
NextVision wrote in its financial report published last week, "The Russia-Ukraine war as well as the 'warming up' of the global defense market, have resulted in many countries declaring their intentions to significantly increase defense and military equipment budgets. The wars in Ukraine and Gaza highlight the acceleration that exists in the use of suicide devices, drones and small surveillance drones for the use by forces in the field."
The report shows that until 2019, the company had revenue of just several million dollars per year but the wars of recent years have stimulated product demand. By 2023 revenue had doubled from the previous year to $52 million with 53% of sales in Europe, 25% in Israel and 15% in the US.
NextVision is a lean operation with just 70 employees with net profit of $27.5 million, up 150% from 2022. The company's orders backlog at the end of 2023 was $71 million, up from $10 million at the end of 2022.
Market sources say that NextVision's cameras are perhaps not the most advanced and the sharpest in the market but their advantage is the balance between "weight and range," says Eyal Haviv, investment analyst at the Value2 investment fund. "There are cameras that see further with better quality pictures but have double the weight." This means that NextVision allows drones to travel further faster than rivals, giving a major advantage in the battlefield.
Can the share rise further?
In 2023 alone, NextVision's share price rose 330% - providing the best returns of any company in the TASE leading indices, and now investors are asking if this is a bubble share price reflecting excessive enthusiasm or if the share price can rise even further.
Analysts in the market point out positively that the company has realized all its previous forecasts. "With expected growth of 70% in 2024, the company is still traded around logical multiples for a company growing at these rates," explains Leader Capital Market analyst Ilya Fainer. He believes, "Continued improvement in results will continue to provide support for the stock."
NextVision is traded at a multiple of 36 of profits but when looking at its guidance for 2024, it looks like a more reasonable multiple of 21, with the company's cash reserves deducted, a multiple of 16-17.
Another analyst says, "Growth companies abroad of this type are traded at much higher multiples. 2024's results are already very clear and the question is whether the company can continue to meet forecasts in 2025."
Fainer adds that the main risk that could ambush the stock is the market's expectations: "With the performance so far and at the current pricing, the level of investors' expectations is also very high, as they focus on the company's moves to create additional growth engines, including through acquisitions, expansion and entering potential target markets that will continue to support the positive sentiment towards the stock." The other analyst agrees, "Any small miss, even a delay of a quarter or two, could cause the stock to plunge."
Feelers in the US
NextVision's exceptional performance on the TASE has led analysts to believe that the day is not far off when the Israeli company will hold a Wall Street IPO. The company itself does not confirm this, but there has been talk for some time about acquiring operations in the US to facilitate its entry into the market there. Beyond that, the analysts say, it is possible that in the future it will also enter the field of underwater cameras. In other words, they believe NextVision still has room to grow.
Value2's Haviv would like to see improved annual recurring revenue (ARR). "Ultimately, NextVision sells a product, that is, hardware and not software, and it does not have the added value of customers who need to continue to maintain constant contact with it. This is a component that Wall Street also likes very much and it could push the company forward. In the meantime, it is not discussing such a possibility."
For investors who want to buy the stock but fear the high price, Haviv recommends waiting. "We are in an environment of conflicts in the world. I assume that if and when these conflicts diminish, the enthusiasm of investors will also wane. When that happens, it will be time to see a buying opportunity in the stock."
Published by Globes, Israel business news - en.globes.co.il - on March 24, 2024.
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