By Pete Gallo
I’m not sure if any member of Ramius Advisors’ investment team made it to the Vancouver Winter Olympics in February. But if so, the person would likely be upbeat about all the body-imaging scanners at the airport as well as the high-tech screening devices at event sites.
Why? Ramius is one of the largest shareholders of a tech company you’ve probably never heard of, called OSI Systems, which won the contract to provide security technology to the Vancouver Games.
Shares of OSI have been on a roll. The stock has doubled in value over the last six months, hitting $28 as of February 10. Filings with the Securities and Exchange Commission show the hedge fund owns some 555,500 shares of the company, swelling its stake to roughly $15.6 million.
The hedge fund has been a long-term investor in the company. With a market cap of just under a half-billion dollars, OSI, which has been around since 1987, is showing real traction, thanks to a recent spurt of buying of electronic screening equipment for passengers and cargo at airports.
Ramius shouldn’t consider selling at this point. In addition to the contracts in Vancouver, the company since last year has been providing its branded Rapiscan Systems equipment through other transportation agencies at home and abroad. On February 1, the company announced a new $25 million U.S. government contract, helping push the stock $3 higher over the following week. Other deals were inked with NATO and international customs agencies in the United Kingdom.
Although a small cap stock, the company is well positioned because it focuses both on electronics and medical imaging, the very technologies being used at airports in the war on terrorism. Besides, if the contracts start to dry up, the company can rely on its pure medical technologies, a high-growth area on its own. And the company counts Lockheed Martin and Honeywell among its clients. That always helps.
Another long position in the Ramius portfolio is the Peabody, Mass.,-based Analogic, yet another medical imaging company that has been growing thanks to new security and defense industry applications for its technologies. Analogic was trading at $38 on February 10, gaining roughly $10 over 12 months. Ramius owns about 12,000 shares, according to the SEC.
Ramius may want to buy more. In late January, Analogic inked a deal with L-3 Communications’ Security & Detection Systems division to upgrade the company’s bomb detection systems used at airports. (The much larger L-3 placed an order for just a handful of detection systems as part of a $7 million contract with Analogic in early 2010.)
Analogic is also, separately, teaming up with Britain’s Smiths Group, one of the world’s largest bomb-detection equipment makers, with the intent of using an imaging technology called advanced tomography to compete with France’s Safran group, which still employs older X-ray technologies to the same end.
But surely the Ramius investment team can recognize that MRI technologies aren’t being used just at hospitals anymore? Big Brother has arrived, and he has a lot of discretionary cash earmarked for transportation security. (With MRIs being used to look for contraband, I suggest Ramius use its shareholder influence to get Analogic to screen for illnesses too, so that airline tickets might also become a health insurance deductible.)
Another medical-imaging security play in the portfolio is Actel. Ramius owns some 2.4 million shares in Actel, based on regulatory filings. At $11.15 per share (as of February 10), the hedge fund’s stake weighed in at about $26.8 million. Ramius is the largest shareholder, though Renaissance Technologies is also onboard with some 1.5 million shares, according to SEC filings.
The company’s president and chief executive, John East, announced in early February that he would step down. Actel recently reported a modest profit after seeing year-to-year revenues decline some $50 million in the final quarter of 2009.
The company is best known for its field-programmable gate arrays, a form of integrated circuit used in aviation and areospace electronics. Its microchips are also used for medical technologies, and the company produces flash storage hardware for computer systems. Just under half of revenues are from military purchases.
