Citi downgrade starts Bezeq slide

Analyst Michael Klahr has cut his recommendation to "Sell", prompting a reaction affecting the whole market.

Bezeq Israeli Telecommunication Co. Ltd.'s (TASE: BEZQ) share price is falling on the Tel Aviv Stock Exchange today, dragging down B Communications (which holds 30.92% of Bezeq), and Internet Gold Golden Lines Ltd. (Nasdaq: IGLD; TASE:IGLD) (which holds 67.99% of B Communications). Bezeq is currently down 5.48%. The plunge was precipitated by a "Sell" recommendation by Citi analyst Michael Klahr.

"Short-Term Gain for Long-Term Pain" Klahr headlines the note distributed to Citi clients. "We have seen it before: a stock rallying ahead of a major change in the competitive environment. The impact of that change is hard to forecast and is still seen as some way off. Earnings remain strong with investors extrapolating near-term cash flows into the future. And then the competition hits, with pricing and share falling faster than had been anticipated." Klahr notes that Bezeq has risen by 126% since its low in July 2012 lows. "We may be early to this call," he writes, "but think that this could be the last hurrah for Bezeq shares ahead of new fixed competition."

Klahr refers here to changes expected in the telecommunications market with the advent of Israel Electric Corporation's fiber optic venture and the establishment of a wholesale market that will put downward pressure on Internet infrastructure prices. He downgrades Bezeq from "Neutral" to "Sell".

The tumble taken by Bezeq is weighing on the entire stock market. Bezeq is the most heavily traded share today, with turnover twice that of Ratio Oil Exploration (1992) LP (TASE:RATI.L), the second most traded share.

Published by Globes [online], Israel business news - - on October 23, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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