Bezeq’s profit slips on fixed-line phone weakness

Bezeq Israel Telecom on Thursday reported a 5% decline in quarterly net profit as revenue from fixed-line telephone services continued to decline.

Israel’s largest telecoms group said it earned NIS 358 million ($99m.) in the second quarter.

Revenue dipped 1.9% to NIS 2.46 billion, with telephony revenue down 7.2%, partly offset by high-speed Internet revenue growth of 2.3%.

Bezeq was forecast to earn NIS 360m. on revenue of NIS 2.46b., according to a Reuters poll of analysts.

The company, which is facing regulatory uncertainty over a plan to merge its units, reiterated its 2017 net profit estimate of NIS 1.4b., compared with NIS 1.24b. in 2016.

Bezeq is also battling legal troubles. Its controlling shareholder, Shaul Elovitch, CEO Stella Handler and a number of other officials related to the company and the Communications Ministry are under investigation by the Israel Securities Authority (ISA).

Elovitch was forced to step down as Bezeq’s chairman while he and other officials have various restrictions imposed, such as not being able to work or leave the country. They have all denied any wrongdoing, while many details are being kept from the public under a court gag order at the request of the ISA.

Last week, acting chairman David Granot was detained by police after being questioned on suspicion of bribery and money laundering.

“We have weathered through the recent events surrounding Bezeq and the increasing competition across all operating segments,” Granot said on Thursday.

Bezeq itself was not under investigation, and a 20% share-price drop since the investigations began in June was a buying opportunity, Barclays analyst Tavy Rosner said.

“We recommend investors to... focus on Bezeq’s solid fundamentals,” he said. “We believe that Bezeq will ultimately decide to strengthen its corporate governance in order to resolve its intrinsically complex relationship with its controlling shareholder.”

Rosner rates the stock “overweight.”

Bezeq’s shares were 4.5% higher in afternoon trading on Thursday.

In the company’s fixed-line business, which generates most of its growth, net profit in the quarter slipped 2.8%.

Handler said despite increased competition, Bezeq could do well in the wholesale market, where it leases its lines to competitors.

“Our investment... benefits other telecom providers, with hundreds of thousands of customers already streaming TV content over Bezeq infrastructure,” she said, referring to new Internet-based TV services from rivals Cellcom and Partner Communications.

Its Pelephone unit, Israel’s third-largest mobile operator, saw a 162% jump in quarterly profit to NIS 34m., with subscribers up to 2.41 million from 2.26 million a year ago.

(Reuters)