The Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) share is the best Israeli communications share for investment, according to Barclays Investment Bank, which has begun coverage of the Bezeq Israeli Telecommunication Co. Ltd. (TASE: BEZQ), Cellcom, and Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR) shares. Barclays rates Cellcom "Market outperform," Bezeq "Market perform," and Partner "Market underperform." Barclay's target price for Cellcom is NIS 32, 17% higher than the current share price, while its target prices for Bezeq (NIS 8) and Partner (NIS 19) are close to the market price.
"Over the past five years, the Israeli telecommunications industry has undergone unprecedented regulatory changes. The most prominent was intensification of competition in the cellular market, following the transition from three players to five players, which had a substantial impact on revenue, profit margins, and share prices," writes Barclays analyst Tavy Rosner.
"Looking ahead, we see a decline in regulatory risk as the most significant factor for communications companies' shares," Rosner added, noted the approval for the elimination of structural separation at Bezeq and the sale of Golan Telecom Ltd. as an example. At the same time, he said there was uncertainty concerning the result and timing of regulatory decisions.
Explaining his preference for Cellcom over Partner, Rosner said, "With the opening of the wholesale landline market in 2015, the two companies began to operate in order to become a communications company providing all services. We like the launch of the discount TV service. Cellcom has reached a 4% market share in the television market within a few months, and we expect this expansion to continue, after it recently added sports channels."
Commenting on Partner, Rosner wrote, "The company is now looking for a way to enter the television/triple play market with something that will distinguish it. Until that happens, we are 'struggling' to find some important catalyzer for the share."
Rosner said that Bezeq was currently composed of four independent companies, and had coped well up until now with the upheaval in the cellular market, given its balanced composition of revenue. He predicted that the company would become much more efficient when it can eliminate the structural separation between the group's companies, writing that he believes Bezeq can save up to NIS 800 million in this way. Rosner predicts that regulatory approval for this measure will be given gradually, thereby maintaining stability in the market. Due to the uncertainty in the matter, he recommends the Bezeq share at the moment "as an interesting option for patient investors."
Rosner commented on the possibility that Golan Telecom, one of the new competitors that entered the market in 2012 and caused intensified competition in it, would be sold. "A Golan Telecom exit will significantly relieve the pressure in the cellular market," he writes. "We believe that average revenue per user (ARPU) and profit margins will remain low as long as the market retains five cellular operators," he states. Without making predictions about Golan Telecom's future, he writes that if the number of players declines from five to four, ARPU will recover in 2017.
Published by Globes [online], Israel business news - www.globes-online.com - on July 19, 2016
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