Cellcom Cheapens to Partner on Outlook: Israel Overnight
Cellcom Israel Ltd. (CEL) slumped in New York to trade at the widest discount in two years versus its chief competitor on concern Israel’s biggest mobile-phone service provider is lacking growth engines as competition intensifies.
Cellcom sank 4.6 percent to $9.45 in New York last week, while its shares in Tel Aviv posted the biggest retreat since August. The decline sent valuations to 7.1 times estimated earnings, a 13 percent discount to competitor Partner Communications Co. (PTNR) and the biggest gap since June 2010. The Bloomberg Israel-US Equity Index (ISRA25BN) of the largest New-York traded Israeli stocks posted its first drop in three weeks.
While both Cellcom and Partner, Israel’s second-biggest mobile provider, have reported deteriorating revenue as new entrants Hot Telecommunication System Ltd. (HOT) and Golan Telecom Ltd. cut prices to attract new customers, Partner is benefiting from billionaire Haim Saban’s buyout offer. Cellcom, the worst- performing stock on Tel Aviv’s TA-25 Index this year, is indirectly held by IDB Holding Corp., which is struggling to meet payments on about 2 billion shekels ($523 million) of debt.
The divergence in Cellcom and Partner’s stocks last week was “caused by rotation into Partner, which was boosted by the deal to buy control,” Gil Dattner, an analyst at Bank Leumi Le- Israel Ltd. (LUMI) who rates Cellcom and Partner the equivalent of hold, said by e-mail from Tel Aviv on Dec. 7. “There’s still a lot of uncertainty around both these companies because this is still an industry in a trend of secular revenue decline.”
The TA-25 Index (TA-25) added 0.4 percent at 9:49 a.m. in Israel. Cellcom, based in Netanya, Israel, today gained 2.5 percent to 36.19 shekels, or the equivalent of $9.45.
American depositary receipts of Partner posted a third week of gains, rising 0.5 percent to $6.43. The Rosh Ha’Ayin, Israel- based company added 1.4 percent in Tel Aviv today to 24.62 shekels, or $6.43.
Partner, which trades for 8.1 times estimated earnings, said on Nov. 30 that Saban Capital Group Inc. had agreed to buy a 30.73 percent stake in the company from Scailex Corp. (SCIX) Saban will pay 250 million shekels ($65.5 million) in cash and assume the $300 million debt that Scailex owes to Hong Kong’s Hutchison Whampoa Ltd. (13), according to a filing to the Tel Aviv Stock Exchange.
Investors expect Saban, who made his fortune with the Power Rangers franchise, to cut costs and accelerate efforts to explore new revenue sources such as television services, Bank Leumi’s Dattner said.
The emergence of low-cost mobile providers in Israel may reduce Cellcom’s (CEL) sales this year by 15 percent to $1.5 billion, according to the mean of 10 analysts’ estimates compiled by Bloomberg. Partner’s 2012 sales will fall 24 percent to $1.48 billion, according to the average of six predictions.
“There’s not much the incumbents can do at this point to control pricing,” Dattner said. “Their task is to cut costs, hold onto current customers and over time, if there is consolidation, which is quite likely, then they can turn their attention to the revenue side.”
Bank Leumi owns a 4.99 percent stake in Partner through its Leumi Partners Ltd. unit.
Israel, which has a population of similar size to Switzerland’s, has 54 companies traded on the Nasdaq Stock Market, the most of any country outside the U.S. after China. The nation is also home to more startup companies per capita than the U.S.
Teva Pharmaceutical Industries Ltd. (TEVA), the world’s largest maker of generic drugs, rallied 5.1 percent last week to $42.42, the highest level in seven months. Teva’s shares in Tel Aviv rose today for the fourth day in five, adding 2.9 percent advance to 162 shekels, or the equivalent of $42.31.
The Petach Tikva, Israel-based company’s Chief Executive Officer Jeremy Levin will announce on Dec. 11 in an investor meeting in New York his plan for new revenue sources after 2013 sales and profit outlook missed analysts’ estimates.
Allot Communications Ltd. (ALLT), which helps wireless carriers manage traffic, tumbled 11 percent last week to $19.44 in New York on concern mobile service providers including AT&T Inc. (T) may reduce wireless spending in early 2013. The Hod Hasharon, Israel-based company today lost 3.1 percent to 77.26 shekels in Tel Aviv, or $19.55.
To contact the reporter on this story: Leon Lazaroff in New York email@example.com
To contact the editor responsible for this story: Emma O’Brien at Eobrien6@bloomberg.net