Formula Systems: Software-Focused Holding Company at Discount to NAV

Omri Velvart of Legacy Value Partners presented his in-depth investment thesis on Formula Systems (US: FORTY) at Best Ideas 2020.

Thesis summary:

Formula Systems is an enterprise software-focused holding company based in Israel. Formula controls three public Israeli software companies: Sapiens (US: SPNS), Matrix (Israel: MTRX), and Magic (US: MGIC).

The three public businesses are growing at double-digit rates, are profitable, and hold strong positions in their respective markets. Their shares are reasonably priced. Sapiens and Matrix have developed wide moats in attractive markets — Sapiens through its mission-critical core software platforms for the insurance sector ($40+ billion global TAM), and Matrix through an oligopoly position in the attractive Israeli IT services market and through building profitable US operations. Magic is a well-managed legacy software solutions company with a proprietary set of offerings and a strong international footprint.

Formula’s share price represents a ~25% discount to the public NAV, while the company additionally controls three private software companies (50-90% stakes), all of them are profitable and growing.

Formula’s management team comprises capable capital allocators at the group level, while Sapiens, Matrix, and Magic have also achieved demonstrated success in intensive M&A activity over the past twenty years (more than 110 deals at the group as a whole). The group’s unique structure and focus are creating data, financial, and strategic advantages that are rare to be seen in the software landscape. Several catalysts are on the horizon over the next 24 months.

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About the instructor:

Omri Velvart is a modern age value investor and the founder of Legacy Value Partners LP, a Tel Aviv-based hedge fund. Legacy Value Partners is on a constant search for Unique Business Footprints, expanding Moats and Great Management Teams in publicly listed stocks around the Globe. Main focus areas are: Consumer Internet, Enterprise Software, Media/Entertainment and the Israeli Tech Ecosystem. Omri leads a logic, creative and deep research. When the right business is found at the right price – he invests heavily and hold patiently with a 3-5 years horizon.