What do you think? (I couldn't link to this content)

This Small-Cap Software Company
Could Be a Big Buyout Target
By Steve Alexander
March 9, 2010

"With technology buzzwords like “cloud computing” and “Software-as-a-Service” increasing in popularity right now, it’s easy for small tech companies with truly innovative products to get passed over. But my latest magic formula investing play actually develops next-generation software products – and it does so with the fundamental numbers to back it up. Here’s everything you need to know to invest in this potential buyout target…

Magic Software (NASDAQ: MGIC) is a business software company based in Israel. The firm’s business revolves around two main products: uniPaaS, a software development platform designed for creating web-delivered business applications; and iBOLT, software that’s used for integrating business data from various enterprise software applications.

Magic earns revenues from new license sales (34%), maintenance and technical support contracts for existing users (23%), and consulting services (43%, but with a much lower margin). The company has a wide range of customers in virtually all geographic locales around the world.

The products themselves are somewhat difficult to understand for those not familiar with software development and business management applications.

uniPaaS is what is known as a “platform-as-a-service” offering. If you think of your laptop computer, it is controlled by an operating system (OS), most likely Microsoft’s (NASDAQ: MSFT) Windows. You run applications off of this OS, such as a web browser or spreadsheet program. These applications are built using “development platforms” that run on top of the operating system. Some examples for Windows would include Microsoft’s .NET platform, and Sun’s JAVA platform. These provide software developers with the tools needed to build applications.

uniPaaS is similar, but is more focused on building web-based applications that execute through a provided browser-like client (an example of a non-browser based client for a web-based application would be Apple’s (NASDAQ: AAPL) iTunes Store. uniPaaS provides developers with logic languages, data storage, and user interface elements to build their application. The result is an app that is accessed through the provided client instead of downloaded onto a computer and run locally.

The advantages of web-delivered applications are several. For one, they are easily deployable. New changes are picked up immediately, instead of users having to download and install updates. There are few requirements for end-user hardware - minimum processor, minimum memory, required operating system, etc. - to run the applications. This “software-as-a-service” (SaaS) paradigm has seen much hype but has not yet been widely deployed. The advantages it offers and relative new-ness of it presents interesting growth potential for Magic Software.

iBOLT is quite a bit simpler to understand. In modern corporate environments, there exist data stores for information like customer records, supplier records, inventories, transactions, and so forth. These are often spread out over numerous systems, and the lack of integration between them means data is duplicated or gets out of date. iBOLT is designed to integrate data from disparate sources for the purpose of a unified view, which can then be used in developing business applications requiring the data.


iBOLT is designed to tie in with a wide variety of popular enterprise software environments, such as SAP (NYSE: SAP), salesforce.com (NYSE: CRM), Oracle JD Edwards (NASDAQ: ORCL), IBM (NYSE: IBM) systems, and others.

So how does Magic Software measure up to our growth, financial health, and competitive positioning yardsticks? Growth is difficult to project. On one hand, cloud computing is clearly a popular buzzword, but it has not seen significant uptake yet for several reasons.

In fact, Magic Software has had slightly negative revenue growth over the past 5 years. Growth really depends on whether SaaS takes off or not. Questions such as security, performance, and reliability have to be addressed sufficiently before that is going to happen. Once they are, most analysts expect rapid growth.

Financial health is fine, so we can cross that off. After a big, one-time $16 million dividend payment back in January, Magic has about $26 million in cash (close to half of market cap) and no meaningful debt. The company’s operating margins have improved recently, but a trailing twelve-month figure of 7.7% is not especially good for a software firm. The company’s return on capital is currently an impressive 131%, way up from sub-10% levels over the past several years. So there is some positive business momentum here, at least from an operating perspective.

Competitive position is a mixed bag. Once they win customers, uniPaaS is sticky, as it takes significant effort to build skills in using it to make and maintain software, and creating and switching to new business apps is a real pain. But Magic is far from the only firm developing “cloudware” development platforms. Even if the overall market does grow, Magic Software with its tiny resource base will have difficulty gaining market share against behemoths such as Microsoft’s Azure technology, or Salesforce’s Force.com.

On the other hand, the company could be a buyout target for a larger software firm looking to expand into PaaS.

Finally, Magic is a bit of a statistical anomaly in “Magic Formula” investing. Calculating MFI statistics using the last reported financial statements, enterprise value comes out to a miniscule $29.6 million, with over $28 million of excess cash on the balance sheet, giving us an earnings yield of 14.4%.

However, this does not account for the previously mentioned dividend, which was paid out in January. Lopping this $16 million out of excess cash, enterprise value becomes closer to $46 million, and earnings yield falls to 9.4%. That’s still pretty cheap, but not the 10%+ we see from most MFI stocks.

It’s too bad we didn’t beat the ex-dividend date, but Magic Software still makes an interesting micro-cap position today, with a cheap stock price, plenty of growth potential, and a strong financial footing."

Sincerely,
Steve Alexander
MagicDiligence.com

From a $1 low in March 09 til now, wow, buy I don't know much about this computer stuff. So, I seek advice from ya'll.

Giddyup!!

Also, I think DMS (document management system) is going to be huge. With many current computer systems, documents are archived as images (not data). This requires a lot of disk space. Documents stored as images can't be readily searched by the data within the images and this is woefully inadequate for the 21st century.

Btw, thanks to Bill Clinton for building the bridge to the 21st century. Without Bill, we'd still be stuck in the 1900s.

I think this is the best 2 day gain I've ever had on a new purchase and I'm going to be a greedy bastard and hang on. Time will tell if I'm too greedy.

I like the sector. One nice thing about Magic software is that it can be used in conjunction with other software. Other major vendors can be sales partners instead of competitors.

Thanks for the update. I'm trying to wait for the floor to develop...

(I hope the 'dust' doesn't morph into a rockslide!)

Magic Software Fraud Alert...

http://www.magicsoftware.com/en/general/?catID=117

Today's volume should be within the normal range today. Trading range a little wider than I'm comfortable with. Technical indicators still supportive of a move up. Support seems to be at $2.40. Might be a good idea to buy around there.

It sunk below $2.40 for a day and snapped back. Scrazy, you and I are so smart, how come we're not rich?

Lol. Sometimes I wish I was born rich instead of handsome.

FWIW...

Magic Software to Present Strategies for Effective Integration with Microsoft SharePoint and Oracle J.D. Edwards at COLLABORATE 10
Session 'A Template for Business Success: Collaborate with Microsoft SharePoint and JD Edwards' on Thursday, April 22, will highlight integration examples, advantages and savings

http://www.prnewswire.com/news-releases/magic-software-to-present-strategies-for-effective-integration-with-microsoft-sharepoint-and-oracle-jd-edwards-at-collaborate-10-91450134.html

WOW! Up 16.33% at 2.93 (9:35 AM)....

First edit...That may have been the high point....I should have sold and bought back after MGIC fell back to earth...

Me, too (beating the market, NOT owning PLG)...but I always want more!

(I'm still holding MGIC and I'll buy more if it falls to 2.40.)

I think you're right about 2.40 (although I'm hoping...) and Microsoft's cluelessness!

I'm holding for now. But, if the overall market tanks, there's no reason to think that MGIC won't go along with it.

Dorsey is predicting $5.75 for the stock. But the technicals are not good.

Magic Software Enter LTD (MGIC) is in the Software sector. This sector is in Bear Correction status at 70 %. The Sector Bullish Percent is above 68% indicating that the field position is not good and the sector is overbought. Based on a comparison with the Market this stock is underperforming the averages. We say this because the RS versus the Market chart is in a column of O's. Watch for a reversal into Xs as an indication that the RS is improving. The trend chart of Magic Software Enter LTD shows the stock is in an uptrend,or trading above the Bullish Support Line The most recent pattern was a double top at 2.750 on 03/16/2010. This completed a Bullish Catapult chart pattern. The stock's trend chart is currently in a column of X's. The weekly distribution puts the stock on the oversold side by -13.0% The mid range of the distribution is at 2.42. The weekly momentum turned negative on 04/16/2010 indicating short term weakness. The Monthly momentum recently turned negative suggesting longer term weakness.

Sector Data

Sector - Software
Sector Bullish Percent - Bear Correction at 70% in Xs
Percent Positive Trend - Bull Confirmed at 66% in Xs
Percent RS Positive - Bear Alert at 58% in Os
Percent RS in X's - Bear Confirmed at 44% in Os

Stock Data

Technical Attributes: 3 of 5
RS vs. Market - Buy in Os
Trend - Turned Positive on 03/16/2010
Pattern- Bullish Catapult on 03/16/2010
Vertical Price Objective - Bullish Price Obj: $5.75

Considering where MGIC ended today I think Point & Figure works quite well. It got me out of the market before todays drop cause I was able to tell we were in a trading range not a trend.

$2.40 has proven to be a good number for a floor in spite of the market insanity.

The recent low was $2.26 when market went into extreme panic mode. If you can buy it in the low $2.30s, I think that's a good price. Just my opinion of course. No Guarantees.

That seems suspicious to me too. It costs money to list on multiple exchanges but expanding the universe of investors seems to be the only thing they're doing to grow the company.

SAP buying Sybase for $5.8B as it battles Oracle
http://finance.yahoo.com/news/SAP-buying-Sybase-for-58B-as-apf-2844160465.html?x=0&sec=topStories&pos=main&asset=&ccode=

I think any of these companies could benefit from owning MGIC which could be had for a mere $100 million or so.

This acquisition should help boost the software sector which, as you know, I like.

MGIC stock up 6% this morning. This may be why....

Magic Software Named to SD Times 100 in the SOA and Middleware Award Category

"IRVINE, Calif., June 16 /PRNewswire-FirstCall/ -- Magic Software Enterprises Ltd. (MGIC) , a global provider of on-premise and cloud-enabled application platform and business integration solutions, today announced it was named to the SD Times 100 in the SOA and Middleware award category. Magic Software was chosen by SD Times editors as an industry "top leader, innovator and influencer," demonstrating its ability to set the agenda and advance state of the art technology in software development.

Since 2003, the SD Times 100 has evaluated companies based on their offerings, reputation and "buzz" from the industry. Editors chose Magic Software for its success and momentum in 2010 as a company that provides value to customers by simplifying the process of building and integrating business applications. "

http://www.prnewswire.com/news-releases/magic-software-named-to-sd-times-100-in-the-soa-and-middleware-award-category-96458279.html

Interesting comment about SAP's acquisition of Sybase in Barron's May 17, 2010 Plugged In column: "Software's New Code: Buy"
....

"SAP, which had stubbornly refused to engage in an acquisitions arms race with Oracle, has finally begun to spend again. Last week, the German outfit plunked down $5.8 billion, or $65 a share, for business-software outfit Sybase (SY). The tab was 44% above the average share price over 90 days. But one has to wonder if the company (SAP) was shopping in the right aisle.

Sybase is a bit player in the low-growth enterprise-database market, dominated by Oracle and IBM. Databases are very costly to rip out and switch. So, SAP is unlikely to steal a lot of Oracle database customers (SAP is Oracle's top reseller). But going into the database business could irritate SAP's close database partners, IBM and Microsoft (MSFT). Plus, the unit won't even benefit from cost efficiencies because it will be run as a subsidiary.

SAP says it was most interested in Sybase's compelling mobile-application technology for business software (think SAP accounting apps for iPhones). However, combined with a messaging business, this unit racked up revenue of less than $400 million in 2009, says Cowen analyst Peter Goldmacher.

SAP buying Sybase for its mobile business "is like going shopping for tires and buying a car," Goldmacher says.

Growth through acquisition is one thing, smart shopping is another."