Warren Buffet raised a few eyebrows when he invested some $4 billion into an Israeli company, Iscar Metalworking, last year. However, the Sage of Omaha merely confirmed what internationally-minded investors had already known for years. Despite being primarily known for political instability, Israel has managed to establish itself as a globally recognized hub for innovative, high-growth technology companies.
Tax breaks, as well as a cultural focus on education, helped to establish a burgeoning sector of private and listed technology companies. Often enough, these companies tap overseas capital markets to fund their growth. That’s why shares in quite a number of Israeli companies can be bought and sold in markets such as New York, London, and Frankfurt. One such example is Dmatek, a Tel Aviv-based provider of security solutions.
| German-born Sven Lorenz is a travel and investment writer who divides his time between London and Sark, a tax haven off the coast of France, where he owns and manages a hotel. Sven regularly travels the world looking for the best money-making opportunities. Watch this column as he shares his investment discoveries throughout 2007. |
Companies from small countries often look elsewhere to find room for growth, and in Dmatek’s case this primarily means the U.S. The company’s key products are solutions for remotely monitoring and recording the movements of prison inmates and care patients.
Because of the overcrowding of prisons, as well as the prohibitive costs of running prisons, a growing number of U.S. states, as well as other nations, are switching to alternative forms of incarceration. House arrest is one such form, however it needs sophisticated and reliable technology to enforce it. Dmatek provides the kind of electronic collars that remotely track and monitor offenders (through a satellite connection), including the management of the data that needs to be stored about each subject.
An additional use has been found for such technology, in the monitoring of offenders. Sex offenders, defendants in domestic abuse trials, stalkers, and other high-risk pre-trial offenders can nowadays be monitored electronically so as to minimize the risk they pose to society or their victims. Dmatek’s products are already used by more than 100 government agencies in the U.S. Other countries are catching on to the trend.
Be it prisoners, offenders, or the elderly-all of these markets are only ever getting larger when looking at the number of bodies involved. That’s besides the fact that even within the existing group of potential users, only a tiny fraction has so far been using such technology. The U.S. is, as per usual, the most innovative nation when it comes to adapting new technologies. Other nations are following suit, with the U.K. being most likely to introduce electronic monitoring of sex offenders, and with Denmark working to revolutionize the elderly care market.
From its base in tiny Israel (7 million population), Dmatek is leveraging the entire world market to its advantage.
The ever-increasing media coverage about surveillance-related topics is one of the reasons why interest in Dmatek has been increasing on the London Stock Exchange. Previously little noticed because of its small market capitalization of just £34 million ($68 million), an initial set of investors has recently woken up to the opportunity. The share price has rallied from £1.25 at the end of last year to a recent £1.80.
There aren’t any analyst estimates for 2007. However, a growing market, a solid balance sheet with $9 million in cash, and a management favoring to pursue a long-term growth path, all work together to make this an interesting growth proposition. By the time estimates do come out, the share price is likely to have risen further.
Dmatek also goes to show that as soon as you look across the border of your own country, surprising investment opportunities turn up.
That’s what Warren Buffet must have figured out, too.
Dmatek
Share Price (01/06/07): £177.50
London AIM: DTK
ISIN: IL0010830052
Market cap: £34m/$68m
Earnings/share 2006: 10p