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The global downturn may well be deep, long and painful, yet recessionary periods such as these typically send crime rates soaring, and the worldwide terrorist threat has never been so real. While each of these phenomena are deeply worrying, both of these trends play into the hands of Israeli technology specialist Visonic, traded on London’s Official List as well as the Tel Aviv Stock Exchange.

An international developer and manufacturer of high-quality electronic security systems and components, the company is proven and firmly established, having been set up back in the early 1970s. The company’s many strengths include the slew of patents it has amassed, covering a wide range of technically advanced security products addressing a broad sweep of markets.

Furthermore, this is a global and diverse business, selling many different security-related products across a plethora of nations.

Beating away rivals as it boasts technologically superior products in the areas of security monitoring and home healthcare, Visonic is reaping the benefits of its heavy investment in research and development, and sales and marketing.

Recent financials have been encouraging and Visonic looks well placed to deliver growth, as rising global crime rates drive demand for its security systems and products and the company continues to derive growth from its reassuringly expansive blue-chip client base.

Strategy
A key component of the strategy outlined by CEO Avi Shachrai involves Visonic staying ahead of rival players in this technologically fast-paced sector. This is achieved through ongoing investment in product research and development, as shown by the slew of patents the company has built up, covering its advanced security technology.

By investing in R&D, the company can maintain its lead in producing competitive products. Continued investment underpins profits progression and will ensure the company maintains its technological edge.

Diversification of the business, which builds in resilience, is a further core strategic tenet. Visonic has developed a wide and varied product range, which varies from wireless systems and motion and glass-break detectors to access control systems and alarm software.

Furthermore, its presence is truly global, with its products – made in a state of the art manufacturing plant in Israel – being sold through a network of subsidiaries, distributors and sales representatives in many countries in regions including North America, Europe and Asia-Pacific. This geographic diversification means that slowdown in one country or region should be more than offset by growth and profits progression in others, while also helping to smooth out the effects of currency volatility.

Opining on this strength through diversity, Shachrai explains, ‘We are in so many territories, we have so many products and we have so many customers (including the likes of Chubb, ADT and Securitas). We sell into 73 countries and in 26 languages, and we now have over one million installations worldwide.’

Management places heavy emphasis on driving growth from the existing client base, where there is much scope for as yet untapped growth through new product sales as well as revenues arising from product and system support.

In terms of the particular divisions, much of the strategic onus centres on the core Security and Home Management division, encompassing Visonic’s innovative Telemedicine and Home Healthcare (HHC) business.

HHC is based upon a unique system combining personal emergency response systems, telemedicine (medical services delivered over the phone or internet) and intrusion alert known as The Amber System, which is able to help old or frail people retain their independence by allowing them to live in their own homes. Significantly, this system meets the aims of governments around the world.

A further important part of the business is Visonic Technologies (VT), which is focused on the non-residential technology market and provides an array of location-tracking systems as well as access control systems. VT was meaningfully turned around last year, with losses swinging to operating profits of US$228,000 (£156,000),
on turnover up more than 30 per cent to $8.2 million, driven in part by strong demand seen for the company’s recently introduced Radio Frequency Identification (RFID) tags and badges.

Long-term fundamentals are particularly compelling in the HHC business, upon which much management time is focused. Growth prospects here are underpinned by demographics, since demand for cost-effective homecare and personal emergency response systems for the elderly is growing as the global population ages. Accordingly, security company clients of Visonic are ramping up their presence in the HHC sector, which augurs well for the group’s longer-term growth potential in this particular space.

Management
A founder of the business, armed with a degree in electronic engineering, is Yaacov Kotlicki, executive chairman, who has been a key member of the management team for approaching 30 years. Instrumental in the development of many of the group’s technologies, he has also been key to building up the group’s international marketing network.

Occupying the CEO hot seat is Dr Avi Shachrai, previously head of sales and marketing and, since 2002, both chief executive and president of the company. An experienced high-technology business builder and manager, he has many letters to his name, having studied at the Israel Institute of Technology and studied advanced business management at Tel Aviv University and mathematics and physics at the Hebrew University of Jerusalem.

For the past three years, the man overseeing the Visonic’s numbers has been finance director Yair Naaman, an economics graduate with a nine-year stint as head of finance for what was, at the time, the biggest conglomerate in Israel, on his pre-Visonic CV. Aside from Visonic, he also finds time to act as a non-executive director of Israel-based agro-industrial group Gaon Agro Industries.

Prospects
Despite a gloomy economic backdrop and signs of slowdown towards the end of the year – as well as the adverse impact of euro and sterling devaluation against reporting currency the US dollar – Visonic delivered excellent numbers for calendar year 2008.

Sales grew 14 per cent to $85 million (£56 million), with strong demand experienced across many products and ‘virtually all major geographic markets’. Growth was on a global scale, highlighting the group’s diversity, with sales growing by 150 per cent in Latin America, by 44 per cent in the Nordic countries and by 32 per cent in the Iberia region. Management also flagged up significant revenue growth in Asia and the UK, with Russia providing the only real regional disappointment.

Operating profits powered north from $1.9 million to $4.8 million, whereas pre-tax profits rocketed higher from $200,000 to $4.6 million, although this figure was flattered somewhat by a write-back to profits of a previously made financial asset-related provision from 2007.

In these uncertain times, in which investors have flocked to companies with robust balance sheets, the company cheered them with news of year-end cash and cash deposits of $15.5 million (£10.6 million). This cash position provides strength, which should not only enable Visonic to survive and thrive throughout this downturn, but to do so profitably, by investing in sales and marketing and in support that it can provide to key clients.

Most of the long-term strategic importance revolves around the core business. Here, growth potential is underpinned by the fact that residential monitoring companies, which make up a significant part of the client base, are seeing slower growth in their own recurring revenues in this recession and they will need to fight hard to hang onto customers. In response, they’ll need to spend more on upgrading existing products and services, playing into the hands of Visonic, whose growth prospects have been bolstered by a range of new products based on its ‘PowerMax Pro’ residential security system.

Valuation
Based on the most recent available forecasts in the market, investors might expect steady growth in pre-tax profits to $7.7 million this year, ahead of $9.5 million from $98 million of turnover by 2010. With earnings per share set to come in at 15.7 cents (10.7p) this year and 19.5 cents (13.3p) next, the shares are selling on multiples of four times and 3.3 times the next two years’ earnings respectively, therefore looking very attractively priced indeed, particularly in comparison with peers.

Although there is a risk that the global downturn could curtail those numbers, it is worth noting that Visonic has a track record of under-promising and over-delivering,
and last year’s results showcased the resilience and diversity of its operations.
In terms of valuation, investors should not forget that year-end cash balances were the best part of £11 million, which leaves the current market capitalisation of sub-£18 million looking decidedly ungenerous, to say the least. Buy.

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