"We believe that 2012 will be a very tough year for all communications companies in general and for the mobile carriers in particular. We prefer investing in Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR) over Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) because Partner has better streamlining potential than Cellcom, its multiples are lower, and it has better cash flows," says Harel Finance analyst Rami Rosen.
Partner today reported a 43% drop in net profit to NIS 146 million for the first quarter on an 11% drop in revenue to NIS 1.57 billion. Last week, Cellcom reported a 43.5% drop in net profit to NIS 173 million, and a 0.1% dip in revenue to NIS 1.58 billion.
Rosen says, "Partner's results are worse than expected by every measure, and, after reviewing its business plans, the company will not distribute dividends at this time." He points to the company's lower operating expenses due to its streamlining plan launched in mid-2011, and which will continue through mid-2012. Partner cut its operating expenses by NIS 80 million, but still saw its operating margin fall to 15.8% of revenues for the first quarter from 16.8% for the corresponding quarter.
Excellence Brokerage analysts Liat Glazer and Gilad Alper said that Partner's results were expected, although the loss of subscribers was worse than anticipated (1% of prepaid mobile subscribers and 2.3% of ISP subscribers). The loss was in line with the company's switch to a policy of focusing on quality subscribers instead of increasing market share.
"At the end of the day, it seems that most of the cards are on the mobile market table, with the unveiling of prices by HOT Mobile and Golan Telecom lowering uncertainty. But there is still a big question mark, which could affect the shares, and it is the pace at which the new carriers recruit subscribers and the loss of subscribers by the veteran carriers," they say.
Glazer and Alper said that the preliminary recruitment figures reported by HOT Mobile and Golan Telecom "make it possible almost rational assessments where Cellcom and Partner's results are headed. On the customer side, we believe that we will continue to see a loss of mobile and ISP subscribers by Partner in the coming quarters. We reiterate our "Market perform" recommendation for Partner, but cut the target price to NIS 17 per share."
Leader Capital Markets analyst Sabina Podval still thinks that mobile shares are not cheap. "We think that growing competitive pressure in the sector will continue to hurt the company's business results. The erosion of the company's business results which we saw in the quarter highlight the rising sensitivity of the company to increasing competition and the erosion in mobile prices."
Podval believes that Golan Telecom's launch in May will cause a sharp rise in competition, which will further reduce Partner's results. She cut her target price to NIS 20, and advices limiting exposure to the share.
He believes that Partner will continue its streamlining in the second half of the year, including reducing its workforce. The rising competition in the market will continue to affect the results veteran carriers' results.
Published by Globes [online], Israel business news - www.globes-online.com - on May 23, 2012