Magic Software Enterprises Ltd.: Initiation of Coverage

Thursday, May 8, 2014

William Blair & Company initiated research coverage of Magic Software Enterprises Ltd. (MGIC $8.01) with an Outperform rating and Core Growth company profile. The Magic development environment offering allows software programmers to develop device- and operating system–independent applications—i.e., an application can be deployed across Windows, Android, and iOS devices without having to recode it.

Analysts Bhavan Suri and Rahul Bhangare estimated the company would generate earnings per share of $0.43 in 2014 and $0.49 in 2015.

“Magic’s solutions are used to help develop software faster at lower cost,” Suri said. “The Magic software environment allows developers to avoid repetitive coding by using business logic definition to rapidly build technology applications and integrate disparate data elements. This is a significant advantage for developers to get technology to consumers in near-real time, adjust to new endpoint devices, and provide the same rich user experience, seamless integration with various enterprise systems, and support to multiple mobile devices. As companies look to pull more data in real time into existing and new applications, the Magic integration platform provides a flexible set of tools to rapidly process and integrate this data. The integration and development platforms also enable faster SaaS development and deployment and provide tools to bridge cloud-to-cloud and cloud-to-on-premise applications.”

Bhangare added, “While Magic has grown nicely over the past 30 years, the application development and integration markets are fairly mature and organic growth is probably in the midsingle digits. We believe that the company can continue to expand its services business in the 10%-20% range, but more importantly, reaccelerate its license growth from rates in the low single digits to high single to low double digits. We expect adoption of Magic’s technology will be driven by the continued trend toward the use of mobile devices and the delivery of applications to an increasing number of devices and by the growing focus on ‘big data’ and the integration of information on a real-time basis.”

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