The Institute for Supply Management (ISM) published its Manufacturing Index for the US yesterday. It was a great disappointment. Although the index edged upwards, it stayed below 50%, the threshold dividing economic expansion from contraction, at least that’s what the media has been taught to say. As usual, the economists who had predicted the June index would reach 51.3%, were wrong; it was 49.8%.
There is one place that doesn’t care what happens in the US, and that is the Tel Aviv Stock Exchange (TASE). It is rising regardless of developments in New York. The Netanyahu effect is cited as the cause. The shekel has been strengthening and is now badly hurting manufacturers, especially exporters. People aren’t buying apartments, contractors are failing, people are on the verge of financial collapse, and the budget deficit is ballooning. But the TASE is going up, up and away, and the question is why. I asked a TASE expert, who said the rise was inexplicable. “But, if you could explain the Gmul Investments (TASE:GMUL)-Yona-Shamrock Investment- Bank Hapoalim (LSE:BKHD; TASE:POLI) deal to me, or how a woman can steal NIS 250 million from Trade Bank, and only she, her father, and brother are found guilty, then I can tell you why the TASE is rising.”
Meanwhile ECtel (Nasdaq: ECTX) continues to slide, and I’ve already read reports in Israel that the company’s business is still deteriorating. The reports claim that ECTel filed statements with the SEC that state that the company’s deterioration will continue in 2003, the lay-offs will continue, etc., etc. I searched all the new agencies this morning, but couldn’t find any press release by ECTel about the second quarter. ECtel president and CEO Aharon Shech did not convened a press conference yesterday to announce whether the company’s second quarter results would be better or worse than expected. There can be no doubt that the company thinks that 2003 will be a hard year, and explicitly said so in its first quarter financial report. But the company hasn’t said a thing at this time, which means the share’s recent slide may be unjustified.
DSP Group (Nasdaq: DSPG) also fell 0.5% yesterday, but in this case there was a good and obvious reason. The company’s management and board of directors decided to continue the share buy back on the open market. The company will buy another 700,000 shares, after buying 260,000 in June, for a total of 286,000 shares since January. The purchases in June were at an average share price of $21.49, and at an average of $21 for the year to date. Since February 28, DSP has risen an impressive 44%. The wireless communications chip maker is one company that has survived the crisis intact. It has excellent products and managers in a flourishing industry. What else is needed?
Retalix (Nasdaq: RTLX; TASE:RTLX) is rushing north, rising 5.8% yesterday to $16.80, completing a 78% rise since January 1. The company had a very good first quarter, with a 27% increase in sales to $20.7 million, and a 38% increase in net profit to $1.1 million. The company has definitely found a good niche, designing computer systems for the retail market, and it is flourishing. However, the share price looks quite expensive, and the question is why. I naturally have no idea the amount of the company’s recent contracts. Its contract with Alon Group and 7-11 seem quite impressive. There are two possibilities for the share’s surge. Retalix offers retail chains huge savings, and it’s quite possible that the market is only now grasping the company’s potential, and believes that the company’s profits will be much greater than those forecast by the one analyst covering the share.
If you read the company’s first quarter 2003 report, you’d conclude that its growth rate in North America could be much greater than heretofore thought. Retail chains represent an entire world in terms of sales for a company like Retalix. The first hypothesis to explain the share’s rise is the rapid increase in sales. The second hypothesis is the savings and streamlining Retalix offers are so great that some major companies, looking at Retalix’s market cap, might have an idea toward acquiring it. The fact is that I’ve had my eye on this company for a long time, and I’ve never gotten around to examining it thoroughly. The real question is why more analysts are not monitoring it.
Published by Globes [online] - www.globes.co.il - on July 2, 2003