Cellcom Israel Ltd. (CEL) and Partner Communications Co. are trading at the lowest valuations relative to the largest New York-listed Israeli companies in at least six weeks on concern growing competition will crimp profits.
Cellcom, Israel’s biggest mobile-service provider, fell 2.3 percent yesterday in New York and is trading near the widest discount to the average for members on the Bloomberg Israel-US 25 Index in at least three months, according to data compiled by Bloomberg. Partner, the second-biggest, retreated 2.2 percent and trades at a 66 percent discount to the benchmark, the largest in six weeks. Cellcom lost 2.4 percent at the 4:30 p.m. close in Tel Aviv after it reported a decline in profit. Partner fell 1 percent.
Cellcom and Partner are underperforming as the government allows new mobile-phone service providers and forces existing operators to cut fees as Israelis protest against the rising cost of living and a lack of competition in some industries. Cellcom said today third-quarter profit fell 40 percent to 199 million shekels ($53.5 million) after service revenue declined. The median estimate of six analysts on Bloomberg was for a profit of 229.8 million shekels. Partner plans to fire 1,000 employees as part of reform measures, Globes website reported last week.
“The competition in this market is becoming increasingly tangible,” said Gilad Alper, an analyst at Excellence Nessuah Investment House Ltd. in Ramat Gan, Israel. “They are going to have to react by lowering the prices, and that’s something that is scaring everyone.”
The Bloomberg Israel-US 25 Index has fallen 16 percent this year to 86.83. The Tel Aviv benchmark TA-25 Index declined 0.5 percent to 1,117.15 and is down 16 percent this year.
Cellcom has retreated 36 percent this year in New York to $20.87. The Tel Aviv stock closed at 77.40 shekels, or the equivalent of $20.80, yesterday. Partner is down 47 percent this year to $10.87. The shares in Israel fell 1.4 percent yesterday to 40.63 shekels, or the equivalent of $10.92.
Netanya, Israel-based Cellcom trades at 7.55 times 2011 estimated earnings, a 34 percent discount to the 10.2 average for members of the Bloomberg Israel-US 25 Index. The spread was at 36 percent on Nov. 4. Partner trades at a 6.3 level.
Cellcom’s price estimate was lowered to 80 shekels from 91 shekels at Harel Finance Ltd. on Oct. 13, which cited weaker third-quarter results as average revenue per user falls.
“The crawling retreat in the ARPU isn’t expected to stop this year with the entrance of new competitors in the market,” Rami Rosen, an analyst at Ramat Gan, Israel-based Harel, wrote in an e-mailed note.
The Ministry of Communications has issued licenses to new mobile telephone and virtual operators. Golan Telecom Ltd., an Israeli phone company whose partners include Xavier Niel, founder of one of France’s biggest broadband providers, said last month that it entered a national roaming agreement with Cellcom under which Golan will use its network.
Hot Telecommunication System Ltd. (HOT) said on Oct. 16 that its acquisition of MIRS Communication Ltd., which will also enter the mobile-phone market, was approved by Israel’s Communications Ministry.
The regulatory reforms have led to management changes in both companies. Cellcom Chief Executive Officer Amos Shapira said last month that he will step down on Dec. 31. Nir Sztern was nominated by the company’s board to succeed him.
Partner named Haim Romano, one of the founders of the mobile-phone operator, chief executive officer on Sept. 14.
Psagot Investment House Ltd. recommended selling shares of Partner in an e-mailed report yesterday.
“The market is saturated and has one of the highest penetration levels in the world, which limits the future growth potential,” Ilanit Sherf, an analyst at Psagot in Tel Aviv, wrote in the report.
Israel, whose population of 7.7 million is similar to the size of Switzerland’s, has about 60 companies traded on the Nasdaq, the most of any country outside the U.S. after China. The country is also home to the largest number of startup companies per capita in the world.
Israeli technology companies raised $522 million in capital during the third quarter of 2011, $47 million less than in the second quarter, according to the Israel Venture Capital-KPMG Quarterly Survey released Oct. 24.
Better Place LLC, which is developing charging stations for electric cars, said Nov. 11 that General Electric Co. and USB AG are among new investors in $200 million in equity financing to fund projects in western Europe.
The financing values Better Place, which is 29-percent owned by holding company Israel Corp., at $2.25 billion, almost double the previous amount.
The shekel dropped 0.2 percent to 3.7250 per dollar at 4:54 p.m. The currency is down 5.4 percent this year, headed for the worst annual performance since 2005.
Teva Pharmaceutical Industries Ltd. (TEVA), the world’s largest maker of generic drugs, lost 1.1 percent today to 149.60 shekels, or the equivalent of $40.16. The U.S. shares dropped 0.5 percent to $40.32 yesterday.
Sanofi’s experimental drug Lemtrada reduced relapses from multiple sclerosis and stopped the disease from worsening more than an older drug in a late-stage trial. Teva is developing a competing pill, laquinimod.
Karsch Capital Management said it sold its entire stake in Teva during the third quarter, according to a filing yesterday.
Nice Systems Ltd. (NICE), the maker of digital surveillance and monitoring systems, rose 0.4 percent today to 130.50 shekels, or $35.03. The U.S. shares climbed 1 percent to $34.89.
Nice received an order from C3/CustomerContactChannels, which manages customer service for clients, according to a statement distributed by PRNewswire yesterday.
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