Ori Eyal is the founder and portfolio manager, Emerging Value Capital Management (EVCM). EVCM is a long-short global value fund. Our in-depth research explores the merits of each investment in the context of a global market. Ori Eyal worked at Deutsche Bank Asset Management, Deephaven Capital Management LLC and Aquamarine Fund LLC. He holds an MBA from the University Of Chicago Booth School Of Business. Ori has experience investing in both developed and emerging markets. His interests include logic games & puzzles, artificial intelligence, science/physics/astronomy and futurology.
Fund has outperformed the S&P 500 by a significant margin since inception in October, 2008.
Ori does detail research bottom-up research and takes a global view. Guy Spier has had a significant influence on investment process.
Some previous investments include Vodafone (VOD), Yukon-Nevada Gold. Corp. (YNGFF), Harvest Natural Resources (HNR), etc.
Investments have spanned all industries and countries.
Two past mistakes he made:
1. I loved GDP growth and billions of new people to gain access to buy companies. The problem is that it just does not work. Countless research studies show that there is no correlation between GDP growth and stock market returns.
Another study from 1900-2002 from across the country also shows the lack of correlation. Why is this true?
1. Because markets are factoring in growth and it likely is reflected in the P/E multiple.
2. The growth doesn’t lead to investors capture the growth. Like China has tremendous growth, but lots of fraudulent companies, so it is hard to capture that growth.
2. Second mistake is that I used to keep all my cash in a diversified basket of currencies. But you need the cash usually when some event happens, like the stock market crashes. So just when you need your cash the emerging market currencies crash as there is a flight to safety to the dollar. So I like to keep my cash in US dollars generally nowadays.
I wanted to speak about an investment idea from Israel:
First, is Israel a good place to invest?
Democracy.
Property rights are respected.
Rule of law, government is pro-business.
Has most Nasdaq listed companies (after the US). This is despite the fact that it is a nation of only 7 million people. This is not a per capita number.
More start-ups than any country except US (not per capita again).
Life expectancy is higher than US, UK, and Germany.
Has one of the highest rates of women entrepreneurs.
Most Nobel Prize winners per capita.
Israel just discovered a huge amount of natural gas, which will transform the country.
Israel is the leader behind electric car transformation.
There are educational institutions in Israel which are top notch.
The Weitzman institute has their own power station.
My investment idea is Willi-Food (WILC, Financial).
Willi-Food is Israel’s largest food importer, and specializes in kosher food. They look for products around the world and make it Kosher and sell them for nice margins. The Kosher food market is growing because it appeals to Jews and Muslims, and it has less fat on average, which appeals to health conscious consumers. This makes the company resistant to economic conditions.
There are very few well established kosher brands, so Willi-Food does not have to compete with other big brand companies.
They make cheese, canned food, butter, these are items that people must eat, not discretionary goods.
Also they sell to the military so during times of crisis their sales increase.
They own Gold Frost, and Shamir Salads, which makes hummus and other health products.
Revenue has been increasing, 15% pure organic growth. Nice margins 28.9% GM.
Balance sheet is super strong $50 million net cash. The cash came from some equity raises, but they were looking to acquire a distributor and wanted to increase the float.
The last equity raise was the beginning of last year, but the management promised not to do one again.
The Israeli market is not very big, only about 7 million people, so opportunities are abroad.
They have engineering know-how to make a certain product kosher, which will look good and will sell.
They have good relationships with distributors. They have been advertising, and do not have a super strong brand name, but they are competing against companies, which have very little brand recognition.
They have $17 million total liabilities.
The Williger brothers are good managers. They are not great capital allocators.
They are currently either trying to enter US market, pay a dividend, or be taken over by a private equity firm (but a takeover is a small likelihood).
In small companies, the biggest risk is management doing whatever they want. I believe they are trying to be shareholder friendly. The biggest complaint is that they are holding too much equity. Management is one of the biggest shareholders. They think the company is absurdly cheap and would expect any potential private equity deal to be at a high premium to current market value.
Disclosure: None
