When Adi Sfadia became Gilat Satellite Networks Ltd. (Nasdaq: GILT; TASE: GILT) CEO last July, the Israeli company was in crisis. Revenue had been hit hard by the Covid-19 crisis and Comtech, which had agreed to buy the company for $577 million, was showing signs of regret.
Ultimately, the acquisition was cancelled and Gilat's financial results in the first nine months of 2020 were not very encouraging. But now Gilat's position has undergone a transformation, at least in terms of the capital market. The company's share price has risen 256%, to a level not seen in more than a decade, and its market cap has reached $1.2 billion.
Gilat, controlled by FIMI Opportunity Funds, provides satellite communications solutions. The current momentum in the company's share price is due to a combination of reasons. Firstly, a string of new orders that it has reported and secondly, private investors have flocked to the company in the wake of ARK hedge fund CEO and investment guru Cathie Wood putting Gilat in its Israeli innovative technology Exchange Traded Fund (ETF), and then increasing its stake in the company.
ARK also plans setting up a space exploration ETF and analysts believe that Gilat will be on board.
When you took up the post just before the legal proceedings with Comtech, did you think that the company would be worth more than $1 billion within a few months?
Sfadia: "I'm here to manage the company and bring it to new business and technological records, and through this to raise the value for shareholders in the short-term and the long-term. I cannot comment on the current price of the share but I am a very big believer in Gilat and happy that the market has begun to value the company. If I knew how to analyze what happens on stock exchanges, I'd probably be sitting on the beach with a drink.
"We don't have any information at the moment about the holdings of new bodies or other investors, according to trading amounts in the share."
The legal proceedings weighed on the share
Sfadia also believes that the legal proceedings weighed on Gilat's share price. The proceedings ended with the acquisition being cancelled and Comtech paying $70 million compensation to Gilat.
The market is booming and investors see that the sector is hot. For Gilat too it has been a long time since so much has been happening and we are in very many fields so if one doesn't succeed, the second certainly will. There are a lot of tenders and a lot of opportunities."
What markets are you operating in today?
"Gilat is an excellent company in the forefront of technology. Covid-19 has hit some of our engines of growth, mainly in the field of in-flight connectivity and Wi-Fi connections. We see a very significant improvement in practically all other areas and we have no doubt that also in the in-flight area we will bounce back strongly but it's hard to know exactly when that will happen.
"It is clear to people in the industry that in 3-4 years planes will be connected to the internet via satellites on a larger scale than today - 3-10 times larger according to forecasts. So it's clear to me that the potential for Gilat is enormous.
"The main modems that have been provided to date are 200 megabit per second and there are already modems of 400 and they'll begin to switch to them. We are investing enormously in China and we have one live modem on a plane in China and we will be installing more in the coming months.
"Regarding the cellular backhaul sector, this has currently become a very mainstream sector. Gilat is the leader in 4G satellite backhaul with a market share of more than 80% in 4G and 40% in the overall market. We have technological proof of concept for 5G. 5G will be installed in major cities and will then reach the suburbs and more remote areas but already in its firstr stage it will draw major investments and an expansion of 4G according to requirements.
The satellite backhaul equipment market is not large today - the equipment market is more than $100 million and the services market including satellite capacity is close to $1.5 billion but the equipment market is supposed to grow to $200-250 million within two to three years and the services market to $1 billion within 10 years. This is vast potential growth for Gilat with higher profitability than usual. We recently also entered the marine market, and we appointed a manager for defense activities. The pipeline in this field and generally is very large."
All these growth engines are for the coming years. What about 2021?
"Currently this is very unclear because we have been hit very hard by Covid and nobody knows when the flight connectivity market will return. So we thought it right not to provide guidance to the market. We do see improvement from quarter to quarter and we expect the second half of the year to be significantly stronger, both because that is always the case and also because we believe that the aviation sector will begin to get back to itself. Overall, we see everything beginning to go in the right direction."
After being burnt by the deal that was cancelled, what can we expect in terms of mergers and acquisitions?
"The media has written extensively about what happened with Comtech. I am here in order to manage an independent company and raise its value for investors. I am not looking to sell Gilat. It is a public company that has been in the market for almost 35 years and listed for more than 25 years. If an offer comes along, we will always consider it seriously but at the moment that's not relevant."
And will you be making acquisitions
"Gilat hasn't made any acquisitions for many years and it is beginning to interest us to support growth and to get bigger in a non-organic way, in areas that are at our core. We have an internal team whose role is to scout companies and startups. There is not anything concrete and we have not decided on any specific field but we are combing for opportunities. We have the cash and we ended the year with more than $100 million and although we distributed a dividend the amount is still respectable. There are also buildings that we own in Petah Tikva."
Gilat has also published its fourth quarter financials. Revenue was $46 million, down 14% from the corresponding quarter but up 14% from the preceding quarter. 2020 revenue was $166 million, down 37% from 2019.
GAAP net profit in the fourth quarter was $62.4 million because of the compensation from Comtech, and in all of 2020 GAAP net profit was $34.9 million. Gilat reported a non-GAAP net loss of $1.9 million in the fourth quarter and non-GAAP net loss of $16.4 million in 2020.
Gilat chairman Dov Baharav also announced that he is stepping down.
Published by Globes, Israel business news - en.globes.co.il - on February 17, 2021
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