| Liran Lublin, Director of Research Department, IBI Investment House
Cellcom (TASE 🙂 has released a very good report that provides optimism about the future of the mobile sector. Changes in ownership of Expon will contribute to the moderation of competition in the cellular market and support back to profitability and cash flow that Cellcom has been generating since the beginning of the year. The halt in TV service sales is holding back growth in the segment.We believe that TV service is necessary for the value proposition that Cellcom offers to its customers and as the volume of subscriptions remains as it is the company will be required to address its expense structure later on.
We maintain the target price of NIS 18.5 and the recommendation of an excess return.
Bottom line, the report showed margins and higher results than our early expectations, but nevertheless raised questions about the growth of the TV market.
| Main data in the report:
The number of cellular subscribers in the third quarter increased by 20,000 customers, recalling that during the previous quarter there was an abandonment in the fixed and mobile sectors following a consumer boycott in light of the company’s identification with the call for coexistence.
The average revenue per user (ARPU) increased by one shekel in the quarter and stood at 48.6 shekels. Most of the increase was due to revenue from roaming services and marked a stabilization in the ARPU base in the quarter.
Abandonment rates for the quarter fell to 7.2%. A positive figure that we believe will also accompany the results of Partner (TASE 🙂 and Pelephone.
End equipment sales in the quarter were high at NIS 255 million, contributing about NIS 22 million to gross profit.
Financing costs in the quarter amounted to NIS 40 million and showed a decrease compared to previous quarters, mainly in light of positive results in the company’s investment portfolio.
| Activity segments:
Revenues from the mobile sector amounted to NIS 685 million, of which 474 were from services and 211 from end equipment.
Stationary segment revenues amounted to NIS 348 million, of which 304 were from services (down from the previous quarter) and 44 from end equipment – however, EBITDA in the stationary segment fell to NIS 109 million.
The company’s operating profit was NIS 58 million.
The company presented EBITDA (adjusted) for the quarter in the amount of NIS 278 million, which shows growth compared to the previous quarter (excluding one-time income due to contractor work for IBC).
CAPEX amounted to NIS 165 million
In the second quarter, Cellcom generated cash flow before interest of 110 million and as of the first 9 months of the year, the total available cash flow stands at 221 million. It should be noted that the quarterly figure does not represent and was positively affected by the timing of payments. We believe that a free cash flow of about 200 million a year is more representative of the company.
Cellcom TV – The company reports stagnation in the number of subscribers in the quarter compared to the previous quarter – Cellcom TV’s subscriptions stand at 250,000 households.
Total Cellcom customers connected to IBC stands at about 123,000, an increase of 10,000 from the previous quarter
Expon Updates – The total revenue from Expon during the first 9 months of the year was NIS 45 million and a provision was made for credit losses following the events of NIS 14 million.
The author is the director of a research department at IBI Investment House and has no personal interest in the review. This review is not a substitute for investment marketing that takes into account the data and special needs of each person.