(MGIC) Magic Software, No One Understands How Good Guy Is!

(MGIC) Magic Software

Magic is a code-less software as a service (SAS) provider.  It's a global company, but until recently, hasn't shown much growth. 

What Happened?

Third Quarter 2009, Guy Bernstein became CEO. He quickly promoted Eyal Pfeifel as CTO, partnered with Salesforce.com and within 2 quarters, he raised revenue 30% and has doubled since.


You can see below the growth from q2 of 08 to q4 of 09 that revenue didn't grow at all with an average sequential decline of 1.8%. Since Guy made these changes the growth rate has been 8.52% and if we take out the big jump of 26% the average sequential growth declines to 6%.   

       Rev        Rev Grw%

8-2  16.00

8-3  16.00 0.00%

8-4  15.00 -6.67%

9-1  13.50 -11.11%

9-2  13.50 0.00%

9-3  13.50 0.00%

9-4  14.50 6.90% -1.81%

10-1  19.70 26.40%

10-2  21.00 6.19%

10-3  22.00 4.55%

10-4  25.00 12.00%

11-1  25.00 0.00%

11-2  27.00 7.41%

11-3  30.00 10.00%

11-4  30.50 1.64%

Avg sequential revenue growth 8.52%

The most recent quarterly report didn't show much revenue growth and when you look over several quarters, revenue growth is slowing.  But, this softness in revenue may be coming to an end. 


Magic purchased an app making subsidiary from BluePheonix on Dec 27th 2011.  BluePheonix seems to be have serious financial difficulty as lenders appear to be filing a lawsuit.  http://www.sec.gov/Archives/edgar/data/1029581/000117891312000204/zk1210932.htm 


From what my sources are telling me, the app building division of BluePheonix has some very good talent although AppBuilder MDA (model driven architecture) concept is considered today as legacy. It will be interesting to see what Guy's strategy is here.  

Here are the comments from the earnings press release about it:

 "moving forward, we plan to expand our product offering, epecially our mobile and cloud-based solutions, to provide new and exciting opportunities of our company and greater added value for our customers."

I think revenue growth will resume starting in q1 2012 and accelerate from there.  The reason is they have a huge global client base. check out the link to see a list. Big Big Companies that they can sell to! http://www.magicsoftware.com/en/company/?catID=94

So, I think they take care of the revenue situation.  Let's look at EPS.

        eps  growth%

8-2 0.05

8-3 0.05 0.00%

8-4 0.03 -66.67%

9-1 0.03 0.00%

9-2 0.03 0.00%

9-3 0.03 0.00% -13.33%

9-4 0.11 72.73%

10-1 0.17 35.29%

10-2 0.06 “ 33.33%

10-3 0.08 25.00%

10-4 0.09 11.11%

11-1 0.08 -12.50%

11-2 0.10 20.00%

11-3 0.11 9.09%

11-4 0.13 15.38%

Sequential avg eps growth 23.27%

Since Guy took over, Quarterly EPS growth is an average 23%.  I think this growth continues as a result of strong management, new products, and a deep customer list to sell to.

Looking at valuations.

With a PE of 10 Magic would post a price in the mid $7’s.  If the street place a multiple of 2 times its average sequential eps growth (46) Magic could see its stock in the $20’s.

What about the Balance Sheet?

Current Assets             $68m

Less Total Liabilities   -$25m

shares                            37m

we can see that $1.28 per shares would be left in a close the biz situation.

From a risk reward situation at current price of $6.50, I think this is a pretty good investment.