Episode Details

Formula Systems (FORTY) Q2 2026 — Q2 2026 (three months ended June 30, 2026): revenue $782.4m vs $602.7m, up 29.8%; gross margin 20.2% vs 20.4%; operating profit $71.6m, up 41.3%, margin 9.2% vs 8.4%; group continuing profit $51.6m of which 54.9% is minority; attributable $23.3m vs $8.8m; diluted continuing EPS $1.47 vs $0.56. Shares closed August 25 at $117.51, up 1.96% on 608 shares, and $121.36 on August 26. Formula Systems reported Q2 2026 before the open on August 25: revenue $782.4m, up 29.8% to a second-quarter record, and diluted continuing EPS of $1.47 against $0.56. Both comparisons are like-for-like - the 2025 columns were restated under IFRS 5 with Sapiens as discontinued operations. But Formula earns in shekels and reports in dollars, and the average rate went from 3.5719 to 2.9511 across the same three months. At last year's rate this quarter is $646.5m, or +7.3% - close to the +6.3% Matrix reported in its own currency. THE CALL: HOLD (3/5, A REAL RECORD ON A CURRENCY TAILWIND, AND AN ASSET DISCOUNT WITH NO CATALYST) — base-case value ~$128.30 vs ~$121.36 today. KEY METRICS: - THE SPINE: revenue +29.8% reported, but the dollar bought 3.5719 shekels in Q2 2025 and 2.9511 in Q2 2026. At last year's rate: $646.5m, or +7.3%. - THE CROSS-CHECK: Matrix is 91.8% of group revenue and reported +6.3% in shekels. Two routes to the same constant-currency answer. - THE OTHER HALF: attributable profit $8.8m to $23.3m. Formula's slice of group profit went 30.5% to 45.1% - worth $7.6m; growth gave $6.9m. - WHY THE SLICE MOVED: net financial expense halved, $11.1m to $5.6m, on interest earned at the parent where there are no minorities. - THE CONCESSION: operating profit $71.6m up 41.3%, margin 9.2% from 8.4% - up 74bp on cost lines 94bp lower. Currency cancels out of a ratio. - THE ASSET: Matrix closed at NIS 99.92 on 92.54m shares = $3.12bn. The filed 47.68% is $1.49bn against a $1.86bn value for all of Formula. - THE DISCOUNT: net asset value $154.46 vs a $121.36 tape, 21.4% off. The market implies $980.2m for the Matrix stake, 34.1% below its quote. - OUR CALL: HOLD, 3/5, fair value $128.30 vs $121.36. Bear $101.28, bull $149.35. No sell-side board: four vendor endpoints return empty. What to watch: UP: at constant currency the group still grew 7.3% and the operating margin widened 74 basis points, which currency cannot explain because costs are earned in shekels too. Net financial debt to capitalisation is negative 27.08% against a 65% covenant. And Formula's filed 47.68% of Tel Aviv listed Matrix is worth $1.49bn against a $1.86bn market value for the whole company. DOWN: a shekel reversal takes reported dollar revenue down about a fifth with no operational change. Formula keeps only 45.1% of group profit, the holding-company discount has no mechanism to close, and 608 shares moved on results day. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.