Bloomberg News

Telecom Stocks Retreat on Rising Competition: Israel Overnight

January 09, 2012

Jan. 8 (Bloomberg) -- Israeli telecommunication companies dropped last week, extending their worst year on record, on concern revenue will fall after a competitor signed 10,000 new customers for its cellular services.

Bezeq Israeli Telecommunication Corp., Israel’s largest telecommunications company, dropped 0.2 percent to 6.84 shekels at 4:30 p.m. in Tel Aviv today after dropping 1.9 percent last week. Cellcom Israel Ltd., the country’s biggest mobile-phone provider, slumped to the lowest on record in Tel Aviv after sinking 8.2 percent in New York last week. The TA-Com index of telecommunication companies climbed 1.2 percent last week, underperforming the Israeli benchmark TA-25 Index’s 2.6 percent gain and the 5.2 percent advance posted by the Bloomberg Israel- US 25 Index of the largest Israeli companies traded in New York.

The Ministry of Communications, seeking to boost competition in the market, issued licenses to new mobile telephone and virtual operators last year at a time when hundreds of thousands of protesters demonstrated during the summer calling for lower prices, more affordable housing and free pre-school education.

“There’s a lot of competition coming to the market,” said Jean Kaplan, an analyst at HSBC Holdings Plc in London. “Bezeq may be catching up” with the cellular companies’ drop, he said.

Bezeq’s decline had pushed valuations to 8.6 times estimated earnings last week, while Cellcom traded at 6.7 times 2012 earnings, below the benchmark’s level of 10.

Suspending Production

Israel, whose population of 7.8 million is similar in size to Switzerland’s, has about 60 companies traded on the Nasdaq, the most of any country outside the U.S. after China. It is also home to the largest number of startup companies per capita in the world.

Perrigo Co., the largest U.S. maker of generic over-the- counter drugs, dropped 1.3 percent in New York to $96.06 last week after shares in Tel Aviv sank 3.2 percent to 362.20 shekels, or the equivalent of $94. The $2 premium was the biggest among companies trading in both exchanges. Perrigo advanced 1.7 percent to 368.30 shekels, or $95.59, in Tel Aviv today.

Perrigo will benefit from Novartis AG’s temporarily suspending production from its Lincoln, Nebraska, plant, Louise Chen, an analyst at Collins Stewart LLC, said in an e-mailed note last week.

Novartis’ plant supplies over-the-counter drugs including Excedrin, Theraflu and Triaminic, she wrote. “Perrigo manufactures all the store brand versions of these products,” Chen said.

New Competition

Shares of Cellcom fell to $15.51 in New York on Jan. 6. The shares dropped 1.8 percent to 60.60 shekels in Tel Aviv where shares were trading without the right to receive a 1.90 shekel- a-share dividend payable on January 19.

“This is a continuation of a negative trend in local telecommunication companies on the back of regulatory uncertainty,” said Uriel Goren, head of international clients desk at DS Securities & Investments Ltd.

The New York shares of Cellcom dropped 48 percent in 2011, the most since the company listed shares in New York in 2007. Bezeq’s stock sank 35 percent in 2011, the most since its 1995 initial public offering on the Tel Aviv Stock Exchange.

The TA-Com index of telecommunication companies lost 1.1 percent, while the TA-25 gained 0.1 percent today.

Rami Levi Chain Stores Hashikma Marketing 2006 Ltd., an Israeli supermarket operator, said last week that it signed 10,000 customers since starting its cellular service last month.

Alon Holdings Blue Square Israel Ltd., Israel’s second- largest supermarket operator, signed in December a three-year agreement with Partner Communications Co. to offer mobile-phone services on Partner’s network.

Bezeq, which offers fixed-line, Internet and mobile services, said on Nov. 9 that third-quarter profit fell 6.5 percent as its cellular-phone unit, facing growing competition, lowered rates on regulator instructions and increased its debt.

“Bezeq has come out quite better than Partner and Cellcom because it has more segments than them,” HSBC’s Kaplan said.

Prolor Gains

Prolor Biotech Inc. led gains among Israeli companies traded in New York last week, jumping 21 percent to $5.15 after the Tel Aviv shares advanced 20 percent to 19 shekels, or the equivalent of $4.93. The stock jumped 6.4 percent to 20.22 shekels, or $5.25, in Tel Aviv today.

The company that uses proteins to improve existing treatments, such as in growth hormone therapy, is rising on the back of “greater confidence in multiple clinical catalysts,” said Raghuram Selvaraju, an equity analyst at Morgan Joseph TriArtisan Group in New York.

Prolor, which shares Chairman Philip Frost with Teva Pharmaceutical Industries Ltd., may be “a great fit” as an acquisition target after Jeremy Levin assumes his new position as chief executive officer, Selvaraju said.

The shekel fell 1.1 percent versus the dollar last week to 3.8528 per dollar, extending its 7.5 percent drop in 2011, the worst annual decline since 2001.

Details on 6,050 Israeli credit card holders have been posted on the Internet by a hacker identifying himself as a Saudi, Globes reported on Jan. 6, citing credit card companies.

Last week, details from 15,000 Israeli credit card customers were exposed by hackers on the Internet.

--With assistance from Shoshanna Solomon in Tel Aviv. Editors: Marie-France Han, Glenn J. Kalinoski

To contact the reporter on this story: Tal Barak Harif in New York at tbarak@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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