The communication company partner is expected to record a decline in value in the estimated amount of approximately 300 million shekels before tax in the value of its fixed communications sector.
The company reported to the stock exchange that as part of the preparation for the approval and publication of its financial statements for 2022, an indication was received from the external appraisers regarding the decrease in value, which results from an increase in the discount rate and a decrease in the projected operational cash flow of the stationary sector.
Partner is expected to publish the 2022 reports next week, on March 28.
The stationary sector in Partner includes the internet services, television, international calls and various business services. At the same time, the company operates in the mobile sector as a cellular communication provider, which is its main activity (about 68% of the company’s total revenue).
In preparation for the publication of the annual reports, the companies are required to perform valuations from an external party. In the 2021 reports, and as far as is known also 2022, the one who did the valuations for the company is the accounting firm BDO.
However, a year ago there was a change in the level of ownership in the partner, and subsequently also in its management. Avi Gabbai was appointed to the position of CEO and replaced Avi Tzvi, after he was among the group that acquired control of the company during 2022. The current chairman of Partner is Shlomo Rodev, who replaced Esnat Ronan.
As mentioned, the decrease in value comes, among other things, against a background of a decrease in the projected cash flow of the stationary sector, and it is possible that the new management examined the issue and arrived at a more conservative forecast than it was before.
We note that the competitor Cellcom, which recently published its 2022 reports, did not show any impairment in them; According to Cellcom reports, the book value of the cash generating units is 589 million NIS in the mobile sector and 869 million NIS in the fixed sector.
“The cost of acquiring the customer is the highest”
David Kaplan, communications analyst for the Psagot investment house, believes that the stationary sector is the sector where the telecommunications companies can differentiate themselves, in contrast to the mobile sector where there are no surprises – they all have fifth generation and they all work with the same devices.
“In the landline market, each company has a slightly different strategy: Bezeq, which has no other option, deployed fiber in all directions, Cellcom entered into a collaboration with Hot, so its investments are lower and it does not own the fiber itself, and Partner did half and half: on the one hand, they deployed fiber Theirs is about 900,000 homes, and wherever they deployed – they signed a cooperation agreement with Bezeq,” Kaplan says.
He explains that the result is a difference in the level of investments, depreciation, reductions and current expenses of each company in the stationary sector.
According to him, “Most of the growth in the world of communications is thanks to optical fibers, and the increasing use of all kinds of different content – television, internet, smart home and more – and this increases the need for broadband.
“There is competition between the companies trying to capture the customers, whether it’s through triple, discounts, etc. The cost to get the customer is the highest in the retail world.
“However, when a partner (or any other company) deploys fiber and reaches a new building, it is an opportunity for it to reach a new customer,” he says.
Kaplan believes that in the field of communication, “infrastructure is king”. He began surveying Israeli telecommunications stocks about six months ago and wrote that “In our opinion, infrastructure is the main differentiating factor. Capital expenditure (CAPEX) investments in infrastructure are a way to leverage short-term cash flow for long-term security.”
He added at the time that by controlling fixed and mobile infrastructure, the telecommunications providers have greater flexibility in pricing, and they can make independent decisions regarding network upgrades and investments in it.
Partner’s stock has lost about 25% since the beginning of the year
Partner is traded on the Tel Aviv Stock Exchange after it was recently delisted from Nasdaq, and its market value is NIS 3.8 billion, this after a 25% drop in the share price since the beginning of the year – which was exacerbated by the current report.
Last year, control of the company was transferred to a group of investors including Avi Gabai, Shlomo Rodev, Mori Arkin and Phoenix, which purchased approximately 27% of Partner’s shares, which were previously held by a trustee on behalf of the Hutchison Company from Hong Kong.
For the controlling shares in Partner, the group of buyers paid 300 million dollars, which constituted repayment of an owner’s loan that Hutchison previously provided to the buyers of controlling control in Partner.