|
Taipan World Investor Roundup
by James Passin
Elbit Ltd. (ELBT:NASDAQ)
I first recommended Elbit Ltd. (ELBT:NASDAQ) in 1998 when it traded under US$2. Following my initial coverage, ELBT rose as high as US$23, exceeding my original target of US$17. I downgraded ELBT to Hold after the company sold its Peach subsidiary to Microsoft for US$70 million, a disappointing valuation in the Internet Bubble days. Based on ELBT’s ridiculous discount to net asset value (NAV), I renewed my buy recommendation after ELBT declined to US$8 in mid 2000.
ELBT has subsequently paid out two generous US$1.19 per share cash dividends to shareholders, representing a 30% annual yield. If you bought the stock in 1998 and held on to every share, you would have a negative cost basis after subtracting the dividends! Show me a tech stock that’s ever paid a 30% annual dividend in cash.
ELBT has the best management I have ever seen in any company. They took an incoherent pile of legacy assets and converted it into a high tech incubator (before incubators were “hot”), participating in the acquisition of a GSM license and acquiring controlling stakes in sexy telecommunications start-ups. ELBT realized value by flipping Peach to Microsoft and HyNex to Cisco, as well as through the flotation of the Israeli GSM operator on the NASDAQ. ELBT was able to achieve this growth without diluting shareholders by a single share (other than well-deserved management option grants). And, unlike most tech companies, ELBT shared the wealth with shareholders by paying large cash dividends. Despite the generous dividends and lack of share issuance over the last four years, ELBT still has US$50 million in cash on its balance sheet and zero debt.
ELBT’s proven record of generating wealth for all shareholders provides reassurance that the stock will eventually come back, whatever happens to the NASDAQ. Taking advantage of its liquid financial position, ELBT has been quietly acquiring a synergistic portfolio of controlling interests in private tech companies. In this bear market, entrepreneurs are crawling to VC investors for capital. Investors are able to set the terms of deals — a feeding frenzy for a flush incubator like ELBT.
In my opinion, any one of ELBT’s new subsidiaries could support the current market cap in three to five years. But the clear synergies between ELBT’s subsidiaries should lead to even faster value creation for shareholders of the parent company.
ELBT’s portfolio
Recently, ELBT cleaned up several “loose ends.” It finally divested its worthless controlling stake in Elbit Vision Systems (EVSN:OTC-BB). As a result of this divestiture, ELBT will no longer consolidate revenues or losses from EVSN (which posted quarter after quarter of collapsing sales and mounting losses). ELBT also settled its tax dispute with the Israeli tax authorities for US$180,000 — a paltry amount relative to the full US$10 million (with interest and penalties) formerly under dispute.
A number of factors could trigger a pop in ELBT. But the company will remain undervalued relative to its NAV until sentiment towards tech stocks turns around.
|
