London-headquartered Edison this month announced a joint venture with Tel Aviv-headquartered GK Investor Relations to establish Edison Israel. Garnet Roach hears from Kenny Green and Ehud Helft, both directors at Edison Israel, on how Israeli IR has evolved in recent years, how the army impacts the country’s innovative tech sector and why geopolitics has become less of an issue.
How has Israeli IR evolved in recent years? Are there any areas or companies that are doing particularly well when it comes to IR and anywhere you think firms need to make a greater effort?
Kenny Green: Israeli companies’ investor relations activities have improved considerably over the past 10 years. Leading the charge are the 100+ Israeli companies that trade on major global exchanges, primarily the US. These companies are mainly in the technology and healthcare sectors and are competing for the attention of the same investors as their US and European peers – so they are cognizant of the need for a best-in-class IR effort or their message and investment opportunity risk getting lost in the noise.
Ehud Helft: Although Tel Aviv Stock Exchange (Tase) listed companies have strengthened their IR efforts in recent years, this has mainly been for the benefit of local Israeli investors. Communication with international investors in English is still not common practice for many Tase-listed companies, though some of the major companies – banks and telecoms firms – have come a long way and now publish English press releases and hold earnings calls in English.
How would you describe the situation in Israel when it comes to corporate access and equity research coverage?
KG: Corporate access locally is relatively strong. Management teams tend to be open to meeting investors as the local market is still quite small in terms of the number of players, while being large in terms of assets under management, which recently exceeded the $1 tn mark. Israeli companies also tend to be very open to meeting with overseas investors. Most overseas and dual-listed Israeli companies tend to travel to meet investors on a quarterly basis, and place a strong emphasis on investor communications.
EH: International sell-side equity research coverage has been in decline since Israel was ‘upgraded’ from emerging to developed market status and, as a result, a lot of Israeli companies are now too small for many overseas developed market funds to consider. This is made more difficult because local equity research coverage tends to be only in Hebrew and is in short supply due to the lack of critical mass by sector: it is hard for sell-side analysts in Israel to justify employing a defense analyst when there are only two or three stocks in that sector, which consequently makes it more difficult to communicate the investment message to overseas investors.
What are some of the key differences or preferences between local, Israeli investors and international institutions – and how should companies go about targeting these different investor types?
KG: Israeli investors generally have a value bias and tend to be more risk-averse and less forward-looking than global investors, in our experience. They are often more skeptical, and buy less into future promises or expectations, preferring to measure companies on their track record and past performance. As such it is important for management teams to consistently meet expectations and even over-deliver in order to earn the trust of Israeli investors.
EH: International equity allocations are growing and there is increasing appetite from Israeli institutions to meet the management teams of overseas companies of a reasonable market cap (around $1 bn+).
Israel is well known as an incubator for tech, med-tech and bio-tech companies. What is it about these firms that investors find so attractive and how should they go about marketing themselves to fund managers outside of Israel?
KG: Israeli companies tend to be highly innovative and disruptive companies that are able to think outside of the box. Israel is a country with limited natural resources, and thinks of its most valuable asset as human capital, so it invests a significant portion of its GDP into education and R&D – including a portion of its defense budget.
In fact, many of today’s high-tech leaders in Israel are graduates of the Israeli army’s top high-tech divisions. Furthermore, Israel is by its nature a society with a fairly flat hierarchy: questioning authority is part of the culture. This allows technicians in all sectors across the tech, med-tech and bio-tech space to come up with new and disruptive products that in more rigidly structured societies might never have seen the light of day.
In general, where do Israeli companies hold roadshows, and which cities should they be looking at to expand their investor bases? What tips can you offer companies looking to target new investors?
KG: Israeli companies currently tend to look to the US as their main – almost their only – financing market, and particularly target the traditional pools of capital in New York, possibly Boston and the main West Coast hubs. But we are encouraging companies to consider the significant investment potential emanating from secondary cities in the US and to regularly roadshow companies into Dallas, Minneapolis and Chicago, among others. We also [encourage companies to] target investors in major financial cities in Europe, including London, Frankfurt, Zurich, Geneva, Dublin and the Nordics.
ESG has been a big – and growing – trend across European and North American investors over the past few years. To what degree is this the case in Israel?
KG: ESG as a focus for either investors or companies is very much in its infancy in Israel. There are early signs it’s increasing in importance, but Israel is probably a few years behind Europe and the US on this issue. As European and US investors put more emphasis on ESG considerations, however, Israeli companies will have to respond to satisfy these demands if they are to convert interest into investment outside of the local markets.
Finally, what impact does the geopolitical situation surrounding Israel have on companies, and to what extent are issues such as boycotts or wider regional tensions a concern for investors?
EH: The geopolitical situation used to be a much bigger issue than it is today and we hear relatively little from either companies or investors as to it being a concern. Even when there tends to be a flare-up in the region, in recent years it has been almost completely ignored by the financial markets, which have learnt over the years that the security situation has minimal or even no impact on the Israeli economy.