2 + 2 = 3.2 — Formula Systems just can’t catch up with itself

As it is the case for all postings in this blog, my standard disclaimers apply for this posting.  However, since this posting discusses investments, I urge you to review the disclaimers laid out in the About section with extra diligence. Moreover, even if you have already reviewed these disclaimers in the past, you need to review them again, as they are subject to change without notice.  Do it now, and remember that whatever I say in this blog posting is simply my opinion — it is not science, it is not advice, and it is not an attempt to make you act in any way whatsoever.

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In an earlier posting (here,) I wrote about Formula Systems (1985) Ltd., a company that generated $785 million in revenues and $22 million in net income over the last twelve months, while — and this is no mean feat — maintaining zero debt and growing both revenues and net income significantly.

The point of my earlier posting was that the company, which controls three companies (Matrix IT Ltd (traded on TASE as MTRX,) Magic Software Enterprises Ltd. (traded on Nasdaq and TASE as MGIC,) and Sapiens International Corp. NV (traded on NASDAQ and TASE as SPNS,)) has a market-capitalization that is significant lower than the market capitalization of its controlling stake in its three subsidiaries.

Today a nice little cash dividend from Formula Systems arrived in my brokerage account, prompting me to take a closer look at the market capitalization of the company and its subsidiaries.

And guess what?

In spite of the company growing its market capitalization by 21.82% since June 20th, 2013, the capitalization is still dragging by 20% — an improvement of only 2% over a period of almost six months (and, in real economic terms, the drag actually did not decrease… rather it increased by $3.4 million from $85.39 million to $88.78 million — a fact that is obscured by the relativity of the percentages for the large amounts that we are talking about here.)

Here is the current capitalization snapshot:

 (c) Per Jacobsen, 2013 and 2014.  All rights reserved

(c) Per Jacobsen, 2013 and 2014. All rights reserved

For the reader’s convenience, here is the capitalization snapshot from June 20th, 2013:

(c) Per Jacobsen, 2013 and 2014. All rights reserved

(c) Per Jacobsen, 2013 and 2014. All rights reserved

To learn more about the underlying issue, read my earlier posting on holding company discounts (here.)

Dont be a Mooch!

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