Swiss investment bank UBS has raised its recommendation for Bezeq Israeli Telecommunication Co. Ltd. (TASE: BEZQ) from "Neutral" to "Buy," and lifted its target price to NIS 4.50, a 42% premium on this morning's opening price of NIS 2.56. UBS has had a "Neutral" recommendation for Bezeq for the past two years.
UBS wrote, "Bezeq reported a series of improving trends in the first quarter of 2020 along with encouraging commentary on the near-term outlook (excluding a temporary loss of roaming). At the same time, Israel now has a government which we believe makes it more likely that vital regulation on fiber to the home (FTTH) is passed."
UBS believes that the combination of fiber infrastructure regulation and consolidation in Israel's mobile phone market means Bezeq will have the opportunity to provide fiber infrastructure to every home in Israel with attractive returns for the company, while the merger of mobile operators Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) and Golan Telecom, with 25% and 5% of the market respectively, will result in price stability.
UBS added, "We also see optionality in structural separation removal which may allow Bezeq to utilize a NIS1.2 billion tax asset and potentially declare dividends in the second half of 2021 already." UBS believes that Bezeq will reach annual dividend returns of 12% in the second half of 2021.
Can Bezeq mobile inflect from negative 2-3% growth to positive 2-3% growth, UBS asks, and says, "Yes. There have been several bids among mobile players in Israel recently. A deal was struck and approved by regulators between Cellcom (25% market share) and Golan (9%) recently, which should ead to a stabilisation of mobile competition. The regulator has called for 6-to-4 consolidation.
UBS adds, "Bezeq is one of the cheapest developed market incumbents in our coverage and its outlook has improved materially recently. We believe that the recent stabilization of financial and operating figures is likely to be followed by positive regulatory action resulting in further business improvement in 2021 before the company returns to meaningful dividend payments in 2022."
Bezeq's share price has risen 12.6% since the start of 2020 and is up a further 4.45% today to NIS 3.26, giving a market cap of NIS 9.029 billion.
Published by Globes, Israel business news - en.globes.co.il - on June 14, 2020
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