August 24, 2017 / 11:04 AM / a year ago

UPDATE 1-Israel's Bezeq Telecom profit slips on fixed-line phone weakness

* Q2 net profit 358 mln vs 360 mln forecast

* To pay 708 mln shekel dividend for first half

* Main shareholder under investigation in securities probe (Adds details, share reaction, analyst comment)

By Steven Scheer

JERUSALEM, Aug 24 (Reuters) - Bezeq Israel Telecom reported a 5 percent decline in quarterly net profit as revenue from fixed-line telephone services continued to decline.

Israel’s largest telecoms group said on Thursday it earned 358 million shekels ($99 million) in the second quarter.

Revenue dipped 1.9 percent to 2.46 billion shekels, with telephony revenue down 7.2 percent, partly offset by high-speed Internet revenue growth of 2.3 percent.

Bezeq was forecast to earn 360 million shekels on revenue of 2.46 billion, according to a Reuters poll of analysts.

The company, which is facing regulatory uncertainty over a plan to merge its units, reiterated its 2017 net profit estimate of 1.4 billion shekels, compared with 1.24 billion in 2016.

Bezeq is also battling legal troubles. Its controlling shareholder Shaul Elovitch, CEO Stella Handler and a number of other officials related to the company and the Communications Ministry are under investigation by the Israel Securities Authority (ISA).

Elovitch was forced to step down as Bezeq’s chairman while he and other officials have various restrictions imposed, such as not being able to work or leave the country. They have all denied any wrongdoing, while many details are being kept from the public under a court gag order at the request of the ISA.

Last week, acting chairman David Granot was briefly detained by Israeli police after being questioned on suspicion of bribery and money laundering.

“We have weathered through the recent events surrounding Bezeq and the increasing competition across all operating segments,” Granot said on Thursday.

Barclays analyst Tavy Rosner noted Bezeq itself was not under investigation and a 20 percent share price drop since the investigations began in June was a buying opportunity.

“We recommend investors to ... focus on Bezeq’s solid fundamentals,” said Rosner, who rates the stock “overweight.”

“We believe that Bezeq will ultimately decide to strengthen its corporate governance in order to resolve its intrinsically complex relationship with its controlling shareholder.”

Bezeq’s shares were 4.5 percent higher in afternoon trading.

In the company’s fixed-line business, which generates most of its growth, net profit in the quarter slipped 2.8 percent.

Handler said despite increased competition, Bezeq could do well in the wholesale market, where it leases its lines to competitors.

“Our investment ... benefits other telecom providers, with hundreds of thousands of customers already streaming TV content over Bezeq infrastructure,” she said, referring to new Internet-based TV services from rivals Cellcom and Partner Communications.

Its Pelephone unit, Israel’s third-largest mobile operator, saw a 162 percent jump in quarterly profit to 34 million shekels, with subscribers up to 2.41 million from 2.26 million a year ago.

Bezeq said it would pay a first-half dividend of 708 million shekels, or 0.26 shekel per share, representing 100 percent of net profit.

$1 = 3.6107 shekels Reporting by Steven Scheer; Editing by Mark Potter

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