MGIC - Embedded Expectations Analysis - 2021 03 31
Magic Software Enterprises Ltd. (MGIC:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) earnings, with a 13.0x Uniform P/E. At these levels, the market has bearish expectations for the firm, and management may have concerns about upselling additional services, their gross profit mix, and Magic xpaSpecifically, management may lack confidence in their ability to gain new clients and upsell additional services to existing customers. In addition, they may have concerns about their gross profit mix from the software solution business and the pace of the economic recovery of Israel. Furthermore, they may be concerned about their revenue mix from the professional services business and the Japanese market's preference to buy later iterations of new technology. Finally, management may be overstating the potential of Magic xpa in Japan, and they may lack confidence in their ability to shift India team development resources from xpa R&D to PowWow
Magic Software Enterprises is a provider of: proprietary application development and business process integration platforms; selected packaged vertical software solutions; as well as a vendor of software services and Internet Technology outsourcing software services. Co.'s software technology is used by customers to develop, deploy and integrate on-premise, mobile and cloud-based business applications. Co. provides a portfolio of services in the areas of infrastructure design and delivery, application development, technology consulting planning and implementation services, support services, cloud computing for deployment of applications and API's and supplemental outsourcing services.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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