Over the years, Bezeq Israeli Telecommunication Co. Ltd. (TASE: BEZQ) has distributed generous dividends to its shareholders, and its high dividend yield attracted both local and overseas investors. A year ago, after distributing dividends to the tune of NIS 19 billion over eight years, Bezeq changed its dividend policy, from distributing 100% of its profit to distributing 70%, against a background of an investigation by the Israel Securities Authority and rising competition in the telecommunications market. Even then, though, no-one envisaged a situation in which Bezeq would distribute no dividend at all - an assessment that is now becoming more and more common.
Last week, Bezeq, headed by chairman Shlomo Rodav, warned of the possibility of a material, though unquantified, write down of the value of its subsidiaries, particularly satellite broadcaster Yes. In response, Midroog cut its rating for the debt of B Communications, Bezeq's parent company, and estimated that the dividend for 2019 would be zero, because of the write-downs and the provisions that Bezeq will post that will in effect wipe out its net profit for 2018 (the dividend is distributed every half year on the basis of half-yearly profits). Nevertheless, Midroog said that Bezeq would be able to return to distributing a more substantial dividend in 2020. Leader Capital Markets, on the other hand, said today that there was a rising likelihood not only of no dividend distribution in 2019, but that Bezeq would refrain from distributing a dividend in 2020 as well.
Leader Capital Markets head of research Sabina Levy wrote today in this context: "Bezeq recently announced a material provision for early retirement of employees in fixed-line telephony in its fourth quarter 2018 financial statements, amounting to some NIS 500 million. The provision will wipe out the group's profit for the second half of 2018. Bezeq also sees a material write-down (hundreds of millions of shekels) in the quarter because of the fall in value of Yes."
In her view, the provision for the fall in value of Yes is liable to reach NIS 500-800 million, and perhaps even more.
Levy says that there is a chance that in the near future the company will be required to write down the tax asset arising from Yes's accumulated losses transferred to it, amounting to NIS 1.2 billion. If that happens, she believes that it will prevent Bezeq from distributing a dividend in 2020 as well. The tax asset, she says, is conditional on the probability that the company assigns to the cancellation of the structural separation between it and Yes in the foreseeable future. Levy estimates that before making a final decision Bezeq will try to obtain a ruling in its favor through the courts, but if it fails to reach an understanding with the regulator, it may have to write off the asset, creating a material accounting loss.
Levy points out that in the past five years Bezeq's average dividend yield was 9%, which compares with an average of 5% among European telecommunications companies. In 2018, the yield fell to 4.6% on the company's market cap at the beginning of the year, because of the change in dividend policy.
Published by Globes, Israel business news - en.globes.co.il - on January 14, 2019
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