The prevailing atmosphere on the Tel Aviv Stock Exchange in recent months may have been one of dejection, with trading in the doldrums, but a handful of shares actually fetched tremendous profits for their investors. Outstanding among them was that of Mashov Marketing, an 87% subsidiary of Mashov Computers of the Formula group which, since the beginning of February 1998, has posted a 780% advance. On Thursday, just to make sure, it rose another 7.8%.
This flying leap by the Mashov Marketing share brings to mind not so much its Tel Aviv trading sisters as the sharp advances posted by the shares of the NASDAQ-traded Internet shares. The Yahoo! share, for example, shot up by 102% in the past year, and that of virtual book-shop Amazon posted an advance of not less than 1110%.
There is a valid reason for comparing the rise of Mashov Marketing to that of the US Internet shares. In the past four years, Mashov Marketing has earned not a single dollar. On the contrary, from 1995 until September 1998, the company's aggregate loss amounted to NIS 10 million, while shareholders' equity was eroded from NIS 40 million in December 1995, to NIS 28 million at the end of September 1998.
Yet, in the past year, Mashov Marketing's market value has done nothing but increase. This is because its sole activity consists in holding subsidiary Teletel, operator of popular Internet portal "Walla", a search engine which has expanded to become a "central bus station" for various Internet services. Teletel also engages in the set-up of sites, its customers including Mizrahi Bank, Dun & Bradstreet and others.
In his recommendation on parent company Mashov Computers, Ilanot Batucha analyst Nir Alperin notes that Teletel is the only Internet firm traded on the TASE. "The company is the leader of the local Internet market, and we are therefore issuing it a Buy recommendation, while emphasising the high risk", he adds.
The physical location in which Internet sites operate is unimportant. The Mashov share, too, disregards its physical trading environment. Capital market players, however, explain that the sharp rise in the Mashov Marketing share was due to assessments that Teletel would be issued on Wall Street, where its pricing would be worthy of an Internet company.
Formula group chairman Danny Goldstein told "Globes" that the notion of issuing Teletel on Wall Street was being entertained, but that this was only one of several options. "The board has not resolved on an IPO, a decision on the matter is only expected within the next few weeks", he reported.
Alperin, in his review, states that one possibility is that Teletel may co-opt a strategic investor. As to the company's valuation, he proposes two methods of calculation: the first is to multiply a fixed price by the number of users; the second is to multiply last quarter's advertising revenues, grossed up to annual values, by a certain multiple. On the basis of the first method, Alperin assesses Teletel's value at $14-15 million, reaching only $9.5 million by the second method.
In the company's Q3 1998 reports, Mashov Marketing general manager Yaacov Dunitz and VP Finance Ilan Penn note that they intend focusing exclusively on Internet activity.
Well, on December 1, the share was priced at NIS 0.461. Yesterday, it reached NIS 2.50, completing a 400% advance in two months. This price reflects a market value of NIS 40 million. The company's shareholders' equity, at the same time, has fallen to only NIS 7 million, due to the dividend distribution.
According to Penn, the sharp rise in the share price in the past two months was, in fact, due to the Teletel holding, and the global boom in Internet share prices. Another cause, however, was the fact that, following the technical downturn in the share price on dividend distribution, "investors did a bit of arithmetic, and reached the conclusion that the share price was low, relative to the company's asset value".
Penn confirms that no final decision has yet been taken as to whether to list Teletel or "Walla" for trading on Wall Street. He adds, however, that "Walla" is already issued, in effect, through Mashov Marketing. He also has an economic explanation for the stupendous advance posted by the shares: "Eighteen months ago, when we acquired "Walla", it had 1.5 million monthly hits. It now has 8-9 million monthly hits.
"An Internet portal is a matter of rating. That determines our advertising sales capability, and also our capability of getting stores to position themselves on our site. Rating is the index of Internet success", Penn says. He adds that, following the improvement in rating, the price of advertising on Walla's front page increased by 250% in the past eighteen months. "This applies to the same position, the same size advertisement, everything remains the same, except for the price, which has shot up".
Mashov Marketing's share price has risen even more, and its market value has reached NIS 40 million. Penn was asked whether, as company general manager, he feels comfortable with that increase. His reply was diplomatically worded: "Considering what has happened with other shares in the field, I am certainly comfortable. Mashov Marketing did not post an exceptional advance, in terms of generally accepted norms at this point in time".
Published by Israel's Business Arena February 7, 1999