Bezeq shares will rise by 40% – but there is also a risk

Let’s start with the glass half full. Bezeq is a local powerhouse that is growing mainly due to the introduction of optical fibers into homes and businesses. The fibers improve communication, add additional capabilities and features, and all this is done at lower costs than before. This is how Bezeq grew in the top line while increasing its margins. A winning recipe. So now everyone is looking at how strong-stable-good Bezeq is, when only three-four years ago they were very afraid of it. High leverage, a landlord who has lost control and unclear regulation. Oops – regulation. No one talks about regulation, there is silence and that is excellent for Bezeq. Governments that change like socks and a current government that is busy with politics and does not seem to revolutionize the field of communications, this is fertile ground for Bezeq to put a few more shekels into the account, to produce packages that mix the company’s products and create a clear competitive advantage over the competitors.

It used to be looked at differently, but the communications market has changed, you can no longer say that Bezeq is a monopoly, and that is actually good for it. It is not a monopoly in the legal, accounting, financial sense, but anyone who knows the telecommunications market knows that it consists of Bezeq…and everything else. Therefore, the big, strong, significant threat is regulation. It is not visible on the horizon, but like any risk, you only feel it when it is close. But it should not be neglected.

One way or another, Bezeq as mentioned provides very good results for the first quarter, the profit multiplier in the region of 10-11, the forecast ahead is good, and in a period of uncertainty, this is definitely an investment that may be defined as a defensive position. IBI published a particularly positive recommendation on the stock. Liran Lublin provides her with an upside that exceeds 40%. So after the big risk, here is the big chance – “At a time when the markets are nervous, there are a number of companies that can be said to be stable, predictable, fluid and cheap. In the case of Bezeq, it meets all the criteria,” Lublin writes, “the accelerating fiber connection trend will continue, The streamlining moves will mature and the investment volumes will also decrease in the coming years. At the EV/EBITDA multiplier X5.2 for 2023, we believe that the potential in Bezeq is high. We update the target price to NIS 7.1 per share and maintain the excess yield recommendation.”

In relation to Bezeq Kavi, Lublin writes – “despite the impressive growth in the scope of fiber connections (41 thousand during the quarter) the more interesting story is hidden in the company’s presentation where it presents the addition from the beginning of the first quarter of the year 37 thousand retail subscribers were added and 28 thousand wholesale market subscribers were added As a result of the IRU agreement with Partner. A total of 332 thousand fiber subscribers are connected to Bezeq’s infrastructure and in our estimation this is a strong and significant growth engine.”

Lublin explains that the company’s management expects adjusted EBITDA of NIS 3.8 billion, net profit of NIS 1.2 billion and CAPEX of NIS 1.75 billion for 2023 – “As we have become accustomed to in previous years, the company’s management usually takes a little more caution in relation to its forecasts and even so, the expected Ours for next year is not substantially different from the company’s forecast.

“YES presented an EBITDA of 57 million and a zero profit line for the quarter. The spotlight at YES should be on the migration from satellite to the IP infrastructure that will lead to savings in costs and capital expenditures in the future and in this sense the process is progressing at a fast pace when almost 57% of all YES subscribers are already on IP infrastructure.

In the previous quarter, Bezeq decided to increase its dividend policy to 60% of the net profit (up from 50%) “on a half-yearly basis, starting in the middle of the past year (second half of 2022), NIS 256 million was distributed for it, in addition, the company’s board of directors stated that it would strive to increase the policy to 70% of the net profit as long as the company’s rating is not harmed.”

Lublin claims that given the low risk, the potential for flash value flooding is high. Seems right, until the regulator wakes up, if at all he wakes up.