The Israeli Firm That Investors Are Betting Will Build Trump's Wall

Magal Security Systems, maker of perimeter-security technology, has seen its share price skyrocket since Election Day.

Israeli military machinery at the border fence between the Gaza Strip and Israel, April 19, 2016.
Israeli military machinery at the border fence between the Gaza Strip and Israel, April 19, 2016. Mohammed Abed/AFP

The election of Donald Trump to be the next president of the United States, who has pledged to build a wall on the Mexican border, has boded well for an Israeli company that has already built one wall.

If Donald Trump can be taken at his word, he plans to build a wall along the U.S.-Mexican border and is going to get Mexico to pay for it. And now that he is less than two months away from entering the White House, not a few investors are betting the Israeli company Magal Security Systems will help build it.

Since Trump’s dark horse election victory two weeks ago, Magal’s share price in New York has climbed by more than a third, including a jump of 9% on Friday. On Monday morning local time the stock was up 0.9% to $5.94, its highest in more than eight years.

A tiny company with just 330 employees, a market cap of less than $100 million and sales last year just short of $64 million, Magal knows how to build walls and fences. Its Perimeter Intrusion Detection System offers a high-tech solution of sensors and command-and-control equipment for guarding sensitive installations like airports, prisons and sporting events. It also was a contractor for the West Bank separation barrier and the fence securing Israel’s border with the Gaza Strip and with Egypt.

Magal got a boost last week from a story in Britain’s Financial Times. “Without going into politics, we have the most prestigious and battle-proven technology worldwide in border security,” it quoted CEO Saar Koursh as telling a homeland security conference in Tel Aviv. “If Mr. Trump builds a fence or a wall, we believe our technology will definitely be a benefit.”

Wall Street meets the wall Magal shares, $

While Magal’s share price has been pushed higher by the prospect of a Trump wall, the company says that is only the start. In Europe, rightist parties that take a hard line on illegal immigration have been given a boost by Trump’s victory, and if they come to power they will move to secure borders.

There’s also the growing terror threat in countries like Turkey, France and Belgium that could win the company orders for securing sensitive facilities.

Magal is 60% owned by the private equity fund FIMI, which acquired the stake at $3.50-$4 a share two years ago. The company was formed in the 1960s as a unit of what was then state-owned Israel Aircraft Industries and spun off as a separate company in 1995. It was delisted from the Tel Aviv Stock Exchange in 2011 but continues to trade on the Nasdaq.

Under FIMI”s leadership, Magal has upgraded its operations. Koursh, who previously served in several high-ranking positions at defense electronics maker Elbit Systems, was installed as CEO at the start of 2015. Last April Magal spent $14 million to buy the Canadian company Aimetis, a maker of intelligent internet-based video-management software that is being folded into Magal’s offerings.

Investors are betting on a far brighter future for Magal than its recent performance would hint at. Sales last year dropped 19% to from $78 million in 2014, although they were up on 2013’s $52 million. Net profit fell to $3.1 million last year from $3.4 million in 2014, although that was an improvement over its $4.5 million loss in 2013.

In the first half of 2016, sales were down 4% year on year to $26 million, leaving it with a net loss of $2.5 million.

And then there’s the issue of whether Trump will ever build the wall on the scale that he promised.

In an interview on CBS’s 60 Minutes last week, Trump said he would keep his vow to deport millions of illegal migrants from the United States, but he seemed to hedge on the wall. Mexico has said it won’t pay for it.

“There could be some fencing,” he said. “But [for] certain areas, a wall is more appropriate. I’m very good at this, it’s called construction.”

Now, the Yehud-based company is hoping to get in on Trump's Mexico wall, Bloomberg reported on Tuesday.

“It seems clear that Trump is going to put more investment into security on U.S. borders,” said Saar Koursh, Magal's CEO, in an interview.

Trump's election saved Magal from an otherwise off year. As of the day before the election, the stock had been down over 9.3 percent since April and had underperformed the S&P500 by 11.3 percenty, and the Kentucky Post News reported an increase in short interest in the company's stock, indicating that investors were expecting it to sink even further. Perhaps they were anticipating a Hillary Clinton victory.