Magic Software Enterprises Ltd (NASDAQ: MGIC)

Sector: Technology Industry: Information Technology Services CIK: 0000876779
Market Cap 1.30 Bn
P/B 4.70
P/E 32.54
P/S 2.15
ROIC (Qtr) 12.89
Div Yield % 3.84
Rev 1y % (Qtr) 13.07
Total Debt (Qtr) 95.89 Mn
Debt/Equity (Qtr) 0.35

About

Magic Software Enterprises Ltd., also known as MGIC, is a global provider of software technology and professional services. Established in 1983 and headquartered in Israel, MGIC's primary business activities encompass software services and IT outsourcing, proprietary application development and business process integration platforms, and selected packaged vertical software solutions. The company's operations span across various industries, including healthcare, telecommunications, finance, and manufacturing. MGIC derives its revenue from software...

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Price action

Investment thesis

Bull case

  • Strong operating cash flow of 66.34M provides robust 0.69x coverage of total debt 95.89M, indicating excellent debt servicing capability and financial flexibility.
  • Healthy cash reserves of 103.30M provide 2.64x coverage of short-term debt 39.10M, demonstrating strong liquidity position and minimal refinancing risk.
  • Operating cash flow of 66.34M provides strong 155.37x coverage of stock compensation 427000, indicating sustainable incentive practices.
  • Strong tangible asset base of 334.11M provides 3.48x coverage of total debt 95.89M, indicating robust asset backing and low credit risk.
  • Tangible assets of 334.11M provide exceptional 18.44x coverage of deferred revenue 18.12M, showing strong service capability backing.

Bear case

  • Operating cash flow of 66.34M barely covers its investment activities of (8.87M), with a coverage ratio of -7.48, indicating heavy reliance on external financing for growth which may not be sustainable in a tighter credit environment.
  • Operating cash flow of 66.34M provides thin coverage of dividend payments of (27.64M) with a -2.40 ratio, suggesting potential dividend sustainability issues if operational performance deteriorates.
  • Investment activities of (8.87M) provide weak support for R&D spending of 14.48M, which is -0.61x, suggesting potentially insufficient investment in innovation relative to other capital deployment.
  • Cash reserves of 103.30M provide limited coverage of acquisition spending of (12.94M), which is -7.98x, suggesting aggressive expansion might strain liquidity if market conditions deteriorate.
  • Operating cash flow of 66.34M barely covers operating expenses of (829000) with a -80.03 ratio, suggesting thin operational efficiency margins and limited flexibility.

Peer comparison

Companies in the Information Technology Services
S.No. Ticker Company Market Cap P/E P/S Total Debt (Qtr)
1 IBM International Business Machines Corp 279.99 Bn 35.41 4.28 66.57 Bn
2 ACN Accenture plc 168.17 Bn 22.09 2.38 8.20 Bn
3 INFY Infosys Ltd 74.96 Bn 23.74 3.89 -
4 CTSH Cognizant Technology Solutions Corp 41.45 Bn 19.48 1.99 1.17 Bn
5 FIS Fidelity National Information Services, Inc. 35.21 Bn 231.62 3.36 13.00 Bn
6 WIT Wipro Ltd 29.93 Bn 19.70 2.97 1.95 Bn
7 BR Broadridge Financial Solutions, Inc. 26.38 Bn 28.51 3.74 3.28 Bn
8 LDOS Leidos Holdings, Inc. 23.72 Bn 16.88 1.37 5.23 Bn

Industry comparisons

Current Valuation Value Ind Avg Percentile
EV to Assets EV to Assets 2.33 1.44
EV to Cash from Ops. EV/CFO 19.68 5.63
EV to Debt EV to Debt 13.62 8.06
EV to EBIT EV/EBIT 20.06 -4.05
EV to EBITDA EV/EBITDA 15.10 -0.52
EV to Free Cash Flow [EV/FCF] EV/FCF 20.93 -1.66
EV to Market Cap EV to Market Cap 1.01 1.35
EV to Revenue EV/Rev 2.16 57.14
Price to Book Value [P/B] P/B 4.70 3.34
Price to Earnings [P/E] P/E 32.54 -5.47
Dividend Metrics Value Ind Avg Percentile
Dividend Coverage Ratio Div Coverage (Qtr) 1.44 -0.83
Dividend Payout Ratio % Div Payout % (Qtr) 69.50 0.66
Dividend per Basic Share Div per Share (Qtr) 0.86 0.47
FCF Dividend Payout Ratio % FCF Div Payout % (Qtr) 67.58 6.24
Interest Coverage Int. cover (Qtr) 4.92 -319.17
Growth Metrics Value Ind Avg Percentile
Capex Growth (1y) % Capex 1y % (Qtr) -150.76 -253.62
Cash and Equivalents Growth (1y) % Cash & Equiv 1y % (Qtr) 4.41 114.15
Dividend Growth (1y) % Div 1y % (Qtr) 321.08 35.23
EBIAT Growth (1y) % EBIAT 1y % (Qtr) 11.61 -22.49
EBITDA Growth (1y) % EBITDA 1y % (Qtr) 10.87 -25.03
EBIT Growth (1y) % EBIT 1y % (Qtr) 10.81 -82.44
EBT Growth (1y) % EBT 1y % (Qtr) 13.97 97.07
EPS Growth (1y) % EPS 1y % (Qtr) 15.71 147.29
FCF Growth (1y) % FCF 1y % (Qtr) 22.25 -8,638.64
Gross Profit Growth (1y) % Gross Profit 1y % (Qtr) 11.59 -8.24
Liquidity Ratios Value Ind Avg Percentile
Asset Utilization Ratio Asset Util Ratio (Qtr) 1.08 0.78
Cash Payout Ratio Cash Payout (Qtr) 0.39 0.01
Cash Ratio Cash Ratio (Qtr) 0.54 0.66
Current Ratio Curr Ratio (Qtr) 1.48 2.12
Debt to Equity Ratio Debt/Equity (Qtr) 0.35 0.88
Interest Cover Ratio Int Coverage (Qtr) 4.92 -319.17
Times Interest Earned Times Interest Earned (Qtr) 4.92 -319.17
Profitability Value Ind Avg Percentile
EBITDA Margin % EBITDA Margin % (Qtr) 14.30 -550.76
EBIT Margin % EBIT Margin % (Qtr) 10.79 -775.74
EBT Margin % EBT Margin % (Qtr) 8.60 -827.89
Gross Margin % Gross Margin % (Qtr) 28.20 24.07
Net Profit Margin % Net Margin % (Qtr) 6.60 -830.34