RESEARCH ALERT-Merill starts Magic Software

LONDON, March 7 (Reuters) - Merrill Lynch said in a research report that it had initiated coverage of Israel's Magic Software Enterprises Ltd (Nasdaq: MGIC - news) with a buy recommendation.

-- "Magic has developed a computer language so simple to use that it saves 80%-90% of programming time, over more traditional tools like Oracle's developer 2000 and Progress," said analyst Tal Liani.

-- Sees 12-month price objective $40.

-- "A two-pronged strategy was implemented in 1998: a) vertical integration to gain the mark-up generated by the software houses; & b) a focus on e-business and CRM applications.

-- "The success was immediately noticed: the Company launched its first e-commerce module in September 1999 and has gained already 14 contracts.

-- "Also, Magic's Linux offering is another source for an upside. All Magic's applications are ready for Linux. It has also recently released the first native Linux development tool.

-- "We attribute a lot of value to Magic's strong marketing channels: it has presence in 50 countries and work directly or through 2,500 software houses, which exclusively develop and market Magic applications.

-- "To conclude the upside, we see three sources of a further rerating: the shift in focus on to the applications market; P&L-enhancing acquisitions; and the Linux upside.