Imagine the following situation: The cyber security company prepares a prospectus for Nasdaq in which it reports on contracts with expected volumes of 500 million dollars from the leading entities in the world that actively decide to purchase solutions from a promising and young Israeli company. In the prospectus, the company presents a conservative valuation based on a revenue multiple of 10.7, while the median multiple for similar companies on the Nasdaq is 14.2.
How big was the party? A dizzying Israeli success in recruiting within the framework of a “modest” IPO in American terms that would have brought an Israeli company, which in just five years was able to sell to the American Pentagon, Johnson & Johnson, Visa and Boeing for a value of about one billion dollars on the Nasdaq.
So what went wrong in reality? Shahab Security is a public company in Tel Aviv, and the value differences between the securities cannot be digested by the dormant capital market in Israel, which is probably not used to real success stories.
Overseas, on the other hand, the investment bankers accompanying the deal, which are called “Oppenheimer” and have about 3,000 employees in 92 offices around the world, and are known as one of the 40 best investment banks in the world, are behind the valuation and the deal, which equates to a value of about a billion dollars to the parent securities after the realization of the holdings In SPAK, which is reflected at about 10 dollars per share.
The share price reflects a multiplier of 14.2 on the 2024 revenues, which are about 263 million dollars, since the multiplier method in the US is always calculated on revenue projections for the next year. The calculation compares the father to an even greater value and stands at about 3.6 billion dollars or about $36 per share. You can agree or disagree with it, but this is how the value of companies on Wall Street is determined in most of the Western world, and the father is no exception.
Also, the binding and central document of any offering is the public prospectus. The document that is defined as the “holy of holies” of the financial transaction reveals all the details that exist about the company and the transaction, and false reporting in the prospectus is a civil and criminal offense in the United States. The parent’s revenue projections as well as the fact that it has $500 million of signed agreements to supply its technology for building secure data centers, are all detailed in the prospectus at length.
Those strategic players who peruse the prospectus discover a reality that is not reflected in the share price in the Israeli market: the parent is expected to bring in 173.6 million dollars already in 2023, and a total of 889.1 million dollars by 2025, to earn (operating profit plus depreciation – EBIDTA) at the end of 2025 a total of 162.8 million American dollars .
In this way, it can be said that the American investors actually see a company worth $36 per share based on multiples to benchmark companies that will trade at $10 per share, with a potential upside, assuming that the growth in revenues and profitability will be as expected when the existing agreements back up coverage of at least two years ahead of the expected revenues (as opposed to Pipeline expectations which refer to unsigned agreements at various negotiation stages).
The company’s valuation is based on the numbers reported in the prospectus to the public, and they reflect a purely technical assessment of the profit multipliers and the expected transactions for the company in the next three years, a report that in itself is considered extraordinary and shows the strength of the company’s contracts and business relationships.
What is not in the prospectus? For obvious reasons, it is not possible to perfect the market growth in the father’s core areas, chief among them the field of encrypted computing, which will grow by 2026 between 40-95% according to market studies. The father’s core areas are also the ones that yield her the main expected income. The total number of contracts signed by the company is 500,000,000 US dollars, of which 80 million dollars already in the coming year.
One can only wonder, what do the strategic investors who follow Oppenheimer see in this deal? It all boils down to a simple point: whoever invests in Hab at a value of $10 per share is an investor who believes that based on the prospectus the company can grow in value to over $30 per share in the next two years. And why not buy in Israel at $2 per share?
Because there is no such reality for institutional investors looking to buy $10 million or more in the company. Based on the analysis of activity cycles in the parent stock in the last year, any such demand for a block from a single investor will jump the stock to a value of tens of shekels and the investor will not receive these shares at all. And when you understand that this is not a single investor but dozens of potential institutions, buying on the Tel Aviv Stock Exchange in the volumes that interest them is simply not possible.
And perhaps, with a critical and consistent reading, another, more suspicious and darker pattern can be identified. In the last two years, the parent information security has presented returns of 114% to paper holders in Israel, and a return of about 50% in the past year. These data, which place the parent as one of the five most profitable stocks in 2022 alongside its relatively large short balances, will be whether there are unreported interests driving the wave of contempt against the company.
Be that as it may, the parent recently reported that all the conditions for its listing on the Nasdaq have been met, and announced that the company will start trading in New York on February 28 at 4:30 PM Israel time. We’ll see.
Uzi Moskovitch (Colonel in res.), Chief Executive Officer, served as the head of the ICT and Cyber Defense Division of the IDF until 2016 when he was released. He graduated with a bachelor’s degree in aeronautical engineering from the Technion and holds a master’s degree in business administration from New York University and a master’s degree in strategy studies from the United States Army War College. He also served as VP of the Aerospace Industry and a director at Migdal. Prior to his appointment as CEO of the company, he served as its chairman
Uzi Moskovitch, CEO of Hav (Photo: Yehats)