Nov. 22 (Bloomberg) -- Partner Communications Co. fell to the lowest level in seven weeks, widening the underperformance for mobile-phone providers relative to the Tel Aviv index, as analysts forecast the company’s third-quarter earnings report tomorrow will show the smallest profit in four years.
Partner declined 3.4 percent to $9.87 in New York yesterday and is the third-worst performer this year among the Bloomberg Israel-US 25 Index of the largest Israeli companies traded in New York. The shares dropped 3.3 percent to 35.64 shekels, or $9.50, at the 4:30 p.m. close in Tel Aviv. The Israel-US 25 retreated 3 percent yesterday after U.S. lawmakers failed to agree on budget cuts. Elbit Systems Ltd. fell for the first time in eight days in New York after Clal Finance Brokerage Ltd. lowered its price estimate on the shares.
Mobile-phone companies are trailing the Tel Aviv benchmark this year as new providers enter the market. Rosh-Ha’Ayin, Israel-based Partner will report third-quarter adjusted earnings of 37 cents a share, a 30 percent decline from the same period last year and the smallest profit since 2007, according to the average estimate of three analysts surveyed by Bloomberg.
“The numbers from Partner will underline the many challenges the industry now faces,” said Ori Licht, head of research at I.B.I.-Israel Brokerage & Investments Ltd., who has a “neutral” rating on the shares. “We expect the flattish numbers to continue in the fourth quarter as well and see no hurry to invest in the cellular sector, and in Partner in particular.”
The Bloomberg Israel-US 25 Index has fallen 21 percent this year to 81.84. The Tel Aviv benchmark TA-25 Index declined 1.5 percent to 1,031.81, bringing the slump for the year to 22 percent.
Partner, Israel’s second-largest mobile phone provider, tumbled 51 percent in Tel Aviv this year and Cellcom Israel Ltd., the country’s biggest, is down 42 percent, about double the benchmark TA-25 Index’s drop.
Partner trades at about 6.3 times estimated earnings, below Cellcom’s 6.9 level and the 9.2 average for members of the Tel Aviv measure.
Partner probably will report third-quarter net income of $55.8 million, down from $81.51 million in the same period last year, according to the average of estimates compiled by Bloomberg. Cellcom last week reported a 40 percent decline in profit.
“We expect similar results of cellular companies that already reported, meaning a continued weakening,” Rami Rosen, an analyst at Ramat Gan, Israel-based Harel, wrote in an e-mailed note. “The company will probably return to its regular dividend policy of 80 percent of net profit.”
Partner’s shares sank 15 percent in New York on Aug. 10 after saying it wouldn’t distribute a second-quarter dividend.
Israel’s Ministry of Communications, seeking to boost competition in the market, 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. said on Oct. 16 its acquisition of MIRS Communication Ltd., which will also enter the mobile-phone market, was approved by Israel’s Communications Ministry.
Israel’s cellular market has a high penetration level as average revenue per user in the first quarter of 2011 was at $31.50 in Israel, almost triple the $11.64 average for developing nations, according to Psagot Investment House Ltd.
“The companies were able to grow their revenues even though users hardly increased their use of cellular communication in recent years, despite the market’s saturation, because of the limited actual competition,” Ilanit Sherf, an analyst at Psagot in Tel Aviv, wrote in the report.
The regulatory reforms have led to management changes in both companies. Cellcom Chief Executive Officer Amos Shapira said last month 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.
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.
The shekel declined 0.2 percent to 3.7485 a dollar at 5:13 p.m. The currency is down 6 percent this year, headed for the worst annual performance since 2005.
Elbit Systems retreated 3.1 percent to 151.20 shekels, or the equivalent of $40.34 in Tel Aviv today. The U.S. shares dropped 6.2 percent to $41.26 yesterday. Clal Finance cut its share-price estimate on Israel’s largest non-government defense contractor to $49 from $54.
The price estimate reduction will “better reflect the lower growth outlook for Elbit and the increasing threat of margin erosion as competition heats up over shrinking Western defense contracts,” Tsahi Avraham, an analyst at Clal in Tel Aviv, wrote in an e-mailed report yesterday.
The company said last week third-quarter net income dropped to $36.5 million from $45.3 million a year earlier.
Allot Communications Ltd., Israel’s biggest maker of high-speed networking equipment, was the third-best performer yesterday on the Bloomberg Israel-US 25 Index. The shares fell 0.4 percent to $15. The Tel Aviv stock was up 0.6 percent to 55.89 shekels, or the equivalent of $14.91 today.
“The company offers one of the more advanced solutions in the marketplace,” analysts including Tal Liani at Bank of America Corp., who recommended buying the shares in their initial coverage, wrote in an e-mailed note to investors.
Teva Pharmaceutical Industries Ltd., the world’s largest maker of generic drugs, lost 0.9 percent to 144.50 shekels, or $38.55, today. The U.S. shares dropped the most in three weeks, retreating 3.1 percent to $38.45, leaving them at a 54-cent discount to the Tel Aviv close yesterday, the largest among the biggest Israeli companies traded in New York.
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