Mellanox Surge May Pave Way to Benchmark Index: Israel Overnight

Mellanox Technologies Ltd. (MLNX) is posting its biggest advance since 2009 as speculation mounts the Israeli maker of electronic adapters will become the second technology company in Tel Aviv’s benchmark TA-25 Index.

The shares rose 3.9 percent in Tel Aviv today, giving Mellanox a 31 percent advance since June 30, the largest half- year gain in two years. Mellanox yesterday fell 0.7 percent to $32.77 in New York, where they’re the third-best performer this year on the Bloomberg Israel-US 25 Index of the largest U.S.- listed Israeli companies. The gauge fell 0.5 percent, led by Retalix Ltd. (RTLX)

Tel Aviv Stock Exchange Chief Executive Officer Ester Levanon said in a Nov. 28 interview that she aims to add technology companies to the TA-25 Index (TA-25) to make the measure more representative of the Israeli economy. Mellanox’s market value has surged to $1.35 billion from $877 million at the end of the first quarter as it benefits from increased demand for cloud computing and customers including International Business Machines Corp. (IBM) seek to move data more easily over networks.

“The company will have a higher exposure to investors,” said Brurit Fein, an analyst at DS Securities & Investments Ltd. in Tel Aviv, which is predicting Mellanox will be added to the gauge with a 3 percent weighting when it’s rebalanced Dec. 15. “The entrance to the index will lead to bigger demand for the stock by the exchange-traded funds and to larger volumes.”

The Bloomberg Israel-US 25 Index has fallen 22 percent this year to 81.58, while the TA-25 Index declined 18 percent to 1,082.36.

Cloud Service

Mellanox’s gain in Tel Aviv today has pushed valuations to 31 times estimated profit, more than triple the 9.6 average for stocks on the TA-25 Index.

Mellanox reported (MLNX) third-quarter adjusted earnings of 31 cents per share, above the 29-cent average estimate of eight analysts surveyed by Bloomberg.

IBM, the world’s biggest producer of computer services, was Mellanox’s largest customer last quarter as the Armonk, New York-based company saw revenue rise from its XIV Storage product, Mellanox Chief Executive Officer Eyal Waldman told analysts during a third-quarter conference call on Oct. 26.

Cloud services provide access to software and computing power remotely over the Internet, rather than through companies’ local hardware or networks. The global market for cloud computing is forecast to increase to $241 billion in 2020 from $40.7 billion in 2011, according to Forrester Research Inc.

‘Bigger’

Mellanox expects fourth-quarter sales of $71 million to $71.5 million, above the $70.9 million average estimate of eight analysts surveyed by Bloomberg.

“Our technology is being adopted in multiple markets and applications, as a result, there are numerous opportunities ahead of us,” Waldman said on the conference call.

The Tel Aviv Stock Exchange will update the members of the benchmark index based on trading figures of the last two weeks of November. The bourse requires the companies on the index to have the largest market capitalization among all listed companies and at least 20 percent held by the public.

Mellanox, which is a member of the TA-75 Index (TA-75), will benefit from a broader base of investors that buy or follow the benchmark, said Joseph Wolf, an analyst at Barclays Plc.

“It highlights that the stock has gotten bigger,” Wolf said in an interview from Tel Aviv. “Mellanox is benefiting from greater demand for storage and for large quantities of data, which is driven by video and mobile data traffic.”

A spokeswoman with Mellanox didn’t reply to messages seeking comment on the possible entry to the TA-25 Index.

Delisted

Shares of Makhteshim-Agan Industries Ltd. (MAIN) delisted from the Tel Aviv Stock Exchange after the Israeli maker of agrochemicals completed its merger with China National Chemical Corp., leaving the TA-25 Index with 24 stocks.

A spokeswoman with the Tel Aviv Stock Exchange, who asked not to be identified, declined to comment on the changes in the indexes and said that the bourse will publish the updated list of the TA-25 index at the end of the first week of December.

Nice Systems Ltd. (NICE), the Ra’anana-based provider of analytical tools for recording service transactions, is the only technology company on the benchmark measure, which has seven listings with investments in oil and gas.

Israel counts on exports for about 40 percent of gross domestic product, with 47 percent of the industrial shipping being high technology, according to figures compiled by the Jerusalem-based Central Bureau of Statistics.

The country, whose population of 7.7 million is similar in size to Switzerland’s, has about 60 companies traded on the Nasdaq stock market, the most of any country outside North America after China. It is also home to the largest number of startup companies per capita in the world.

Magal Jumps

The shekel gained 0.6 percent to 3.7670 a dollar at 5:21 p.m. in Tel Aviv. The currency is headed for a 6.4 percent drop this year, the worst performance since 2002.

Magal Security Systems Ltd. (MAGS) soared the most since at least July 2001 in Tel Aviv when Bloomberg started tracking the shares. The shares surged 41 percent to 16.92 shekels, or $4.49. The U.S.-traded shares climbed 67 percent to $4.43 yesterday.

The developer of computerized security systems reported a profit of $7.1 million in the third quarter yesterday after recording a net loss of $780 million in the same period last year.

Retalix, the maker of software used by supermarkets, advanced 2.6 percent to 55.10 shekels, or the equivalent of $14.63 in Tel Aviv today. The U.S. shares fell 3.3 percent to $14.32 yesterday.

To contact the reporters on this story: Tal Barak Harif in New York at tbarak@bloomberg.net; Shoshanna Solomon in Tel Aviv at ssolomon22@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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