With Ilan Mosnaim

Istanbul-based investment house FinansInvest recommends

Formula Systems

(Nasdaq:FORTY) as a Buy. It also recommends


(Nasdaq:RTLX) as a Buy, by the way.

Both moves worked out well, says the investment house's Head of Research, Emre Yigit, with relief. We're a novice in the Israeli market. We're still just feeling our way economically and politically, he admits, acknowledging the investment bank's debt to its Israeli colleagues for their willing cooperation.

Why come here at all? Mainly because the investment house's clientele wanted a crack at a stabler market with good opportunities, he explains.

The deterioration of the geopolitical situation is worrisome and regrettable. It has made FinansInvest more cautious, but the investment house does not plan to change its program of slowly expanding its activity in promising Israeli stocks.

Aside from Retalix and Formula, FinansInvest has other companies in its sights. But Yigit declined to name names at this stage.

TheMarker.com: How did you begin to cover Israeli companies?

Emre Yigit, Head of Research:

Basically, our Turkish market is extremely volatile. In most years it's among the top three in emerging markets, from the perspective of volatility.

Now, partly because of that and partly because several clients began to ask us whether we covered other countries, we decided that it would be a good idea to diversify our interests outside Turkey, in however limited a fashion.

Our parent company Finansbank is essentially a multinational bank. It does a high proportion of his business abroad, mainly in the EU, largely in north Europe.

We thought we should do something similar. Obviously we couldn't follow the bank's strategy, because the opportunity for researching and doing business on let's say the international stock exchange in London are quite limited for a company our size.

We sat down and decided that Israel was the best fit, initially, and the first market we'd try to do business in.

How complementary are the two markets?

The two markets, Turkey and Israel, are not well correlated. The asset mix is quite different.

Israel has a big proportion of hi-tech stocks. Turkey has practically none. In terms of asset mix diversification, it looked like a good idea.

Israel is also far less volatile than Turkey.

To whom are you marketing your ideas?

Before the devalaution, there was a lot of interest by Turkish clients in Israel and in other emerging markets as well.

We looked to do a fair amount of business In Israel. But sadly, the Turkish lira has gone from 175,000 per shekel to about 275,000 per shekel in three months. That means that Israeli assets now look much more expensive.

We will be entering Israel more slowly than we had originally planned. But we will be entering Israel nonetheless.

When did delegates from FinansInvest visit Israel?

When? I myself came twice, one at year-end 2000, then at the beginning of 2001.

About 12 people or so have visited from FinansInvest. Senior executives came to investigate business opportunities, and analysts visited mainly companies. Altogether there were three or four trips.

FinansInvest people also met with government officials, including officers of the Bank of Israel and the Finance Ministry.

When did you first decide to explore other emerging markets?

We decided to explore the possibility of whether we could do any kind of business abroad, not just in Israel in August, September 2000. We first visited in November 2000.

We don't cover any other markets just yet, but we plan to.

Do you feel the attraction of Israeli companies been tarnished by the escalating hostilities in the area beginning in September 2000?

Of course the fighting has affected our approach, but mainly, it just made it more complicated for us.

Put yourself in our shoes. We're complete novices in Israel, just feeling our way on politics and economics. Suddenly you have the added complication of fighting, elections, new governments and so forth.

Yes, it has made us a little more cautious, but it hasn't diverted us from our main aim.

Yes, there's fighting and yes, this is not a good thing. But it won't deter us from investing.

Why did you choose to start coverage with Formula and Retalix?

Retalix was the first report we issued. We issued a report on Retalix on May 10. Then its price was of 54-55 shekels. We rated it a Buy. At least the Retalix recommendation has gone as we expected!

In Israel the problem isn't finding companies to research. There are plenty of companies with interesting stories.

Our main problem is that we are very new to Israel. We are just feeling our way.

The local investment banks have been extremely helpful. We're just feeling our way through the politics and economics.

Our main concern isn't whether Retalix is a company worth buying. It's when we should start recommending it.

We will be covering others and will be issuing other reports in Israel, not limited only to companies.

When will you commence in-depth economic coverage?

I have one in front of me that needs to be edited. Imminently. Although we are comfortable about the ability of our analysts, we are very new to Israel.

We are being very tentative and have been praying that Formula and Retalix would do as we hoped, when we initiated coverage.

We're going through a stage where we're trying to convince our clients that we do actually know what's gong on in Israel, to increase their comfort level. Then we can start transacting business.

How much business?

Well, on an average day, our investment clients operating through FinansInvest do as much business as the total on the Tel Aviv Stock Exchange.

We are convinced we should be able to gain a measurable market share in Israel, but when it happens who knows. Not before the end of this year.

Through whom would you transact business?

No details are available yet. The usual brokers.

Do you plan to invest yourselves to invest in Israel? Or to attract Israeli investors to Turkey?

At this stage we won't be investing. I doubt very much if we ever will. If we do, it it will be a good few years down the line.

Our capital base is in Turkish lira. We get a reasonably good return on equity but the exchange rate isn't appealing for us. We just want to diversify our business slightly.

Are you affiliated with any American or European investment houses?

No. We have a different client base. Some 85% of our clients are Turkish investors, retail and funds. The other 15% consists of international investors in Turkey.

It's a completely different client base. We do have a couple of Israeli clients.

TheMarker.com: Tell us about FinansInvest.

Yigit: FinansInvest grew out of Finansbank, which is one of the largest banks in Turkey. Until year-end 1996, the Turkish capital market regulations allowed us to keep the capital market divisions within the banks.

Then, from 1997 onwards, we had to separate the capital market activities from the regular banking activities.

Formally speaking, we were founded in January 1997. Finansbank is our main shareholder. We have 11 analysts plus assorted support staff.