DS Securities forecasts Cellcom rebound on price cuts
Cellcom Israel Ltd. will extend its rebound from the cheapest level in six months versus New York-traded peers on speculation newer rivals will be squeezed out of the market, according to DS Securities & Investments Ltd.
Shares of Cellcom, Israel’s largest cellphone provider, rose 0.4 percent to $7.31 in New York on Friday, paring a weekly decline of 4.6%. The stock’s 100-day volatility dropped to 41.4, the lowest level since May 17, data compiled by Bloomberg show. The Bloomberg Israel- US Equity Index of the largest US-traded Israeli stocks lost 0.6% last week.
Cellcom has slumped 48% over the past year and traded for 5.35 times estimated earnings last Thursday, 61% below the average valuation on the Israel-US gauge and the biggest discount since August 9. New operators, including Golan Telecom Ltd. and Hot Telecommunication System Ltd., have lured customers from Cellcom and Partner Communications Co., Israel’s No. 2 cellphone provider, by offering unlimited monthly wireless packages for less than NIS 50.
“Companies have been very cutthroat, and the smaller players we don’t think will survive if the prices remain at these levels,” Richard Gussow, an analyst at DS, a Tel Aviv-based brokerage, said by phone last Thursday. “We’re going to see consolidation of the mobile sector, and fewer competitors means less chance of a price war,” he said, adding this would be a “positive catalyst” for both Cellcom and Partner.
‘Slash costs’
Golan and Hot gained about 4.5% of the mobile market, or around 460,000 new customers, through September after less than five months of operation, according to a December 10 note from HSBC Securities Inc. analyst Jean Kaplan. Kaplan covers Bezeq Israeli Telecommunication Corp., which owns mobile provider Pelephone Communications Ltd. Incumbent mobile network operators collectively lost 71,000 subscribers in the third quarter, according to Kaplan.
Due to the competitive landscape, “companies will have to slash costs, raise tariffs and scale back investment,” Ori Licht, an analyst at IBI Brokerage and Investments in Tel Aviv, wrote in a 2013 outlook report. “If this does not happen, we expect to see one of the new operators disappear, to be acquired by or merged with one of the incumbents.”
Israel’s telecommunications sector has seen consolidation in the past. In 2011, Partner acquired 012 Smile Telecom Ltd., an Israeli provider of international long-distance, Internet and local fixed-line services. Cellcom acquired Internet and landline-services provider NetVision Ltd. the same year for NIS 1.57 billion.
Yakum-based Hot bought MIRS Communication Ltd., a wireless operator, for NIS 1.3b. in 2011. Hot was acquired by shareholder Cool Holding Ltd., controlled by French entrepreneur Patrick Drahi, at the end of last year.
Cellcom ‘undervalued’
Golan is the new entrant that will probably suffer most from price cutting in the sector, DS’s Gussow said.
Both Cellcom and Partner, which trades at 7.3 times estimated earnings, are “undervalued for sure,” said Gussow, whose firm recommends buying shares of Netanya-based Cellcom and Rosh Ha’ayin-based Partner. “They’re off their lows. We’re just waiting for investor sentiment to change.”
MagicJack tumbles
SodaStream International Ltd., the Israeli maker of home soda machines, slumped 7.4% last week to $47.34, the biggest five-day drop since July. The Airport Citybased company’s 2013 gross margin, a measure of profitability, will be “flat” from last year as expanding demand forces it to use outside manufacturers, chief executive officer Daniel Birnbaum said on an earnings call last Wednesday.
MagicJack VocalTec Ltd. sank 8.3% to $12.18 last week. The Netanya-based provider of voiceover-Internet services has tumbled 33% in 2013, making it the worst performer on the Bloomberg IsraelUS gauge. MagicJack jumped 33% in 2012.