May 24, 2018 / 9:18 AM / a month ago

UPDATE 1-Israel's Bezeq weighs disposals as profit, revenue drop

(Adds details, background, stock reaction, analyst comment)

By Ari Rabinovitch

JERUSALEM, May 24 (Reuters) - Bezeq Israel Telecom is working on a new strategy that could include selling off assets to help contend with intensifying competition as it saw a 26 percent drop in first quarter net profit.

Israel’s largest telecoms group, at the centre of an investigation into alleged securities offences, said it would focus on core operations and could sell its call center business, Bezeq Online, and the Walla News website.

Bezeq earned 260 million shekels ($73 million) in the first three months of 2018, compared with 350 million a year earlier, while revenue slipped 3.8 percent to 2.36 billion shekels. It was forecast to earn 260 million shekels on revenue of 2.41 billion, according to a Reuters poll of analysts.

Bezeq was a long-time monopoly that began facing stiffer competition in 2015 after the government opened the market to smaller rivals offering far cheaper, though narrower, services.

The arrests in the past year of the company’s chairman, chief executive and other officers suspected of fraud, bribery other securities offenses has added uncertainty. They all deny wrongdoing.

Controlling-shareholder Shaul Elovitch was forced out as chairman last June at the outset of the investigation. His permanent replacement, Shlomo Rodav, was elected last month. CEO Stella Handler will officially step down on July 1 and no successor has been announced.

Activist investor Elliott Advisors last week urged the board to appoint a new chief executive swiftly and to consider a share buy-back programme.

Bezeq’s shares have slid 23 percent in the past year, but were up 2 percent on Thursday, trading in Tel Aviv at 43.25 shekels.

“Our group-wide results in the first quarter of 2018 continue to demonstrate the increased competition and changes in all areas of the telecommunications market,” Rodav said.

He said the company was “in the process of formulating a long-term strategy” while hoping the government would end a forced structural separation that keeps its mobile phone, fixed line, satellite TV and internet units as separate entities.

Bezeq also reported an 80-million-shekel early-retirement plan for 75 workers to be taken in the second quarter.

In the first quarter, Bezeq’s satellite TV business Yes saw its profit plunge 95 percent to 1 million shekels. Mobile phone unit Pelephone gained 21,000 subscribers to 2.546 million, but net profit fell 49 percent to 9 million shekels amid strong competition.

Barclays analyst Tavy Rosner noted the quarterly results were in line with estimates, and that “looking ahead we continue to believe that most of the ‘bad news’ is in the stock and we see more upside than downside risk from here.” ($1 = 3.5692 shekels) (Reporting by Ari Rabinovitch Editing by Steven Scheer/Keith Weir)

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