Investors Spotlight – Cellcom Israel Ltd. (NYSE:CEL)

Cellcom Israel Ltd. (NYSE:CEL) closed with change of -1.38% to $7.15 with the total traded volume of 20901 shares versus to an average volume of 25.85K. The stock was down in the 5 days activity -4.03%. The one month performance of stock was low -13.86%. CEL shares are down -29.35% for the quarter and driving a -29.49% over the course of the past year and is now down -29.90% since this point in 2018.  Right now CEL beta is 2.03. The average volatility for the week and month was at 2.33% 2.25% respectively.

Cellcom Israel Ltd. (NYSE:CEL) announced today its financial results for the fourth quarter and full year ended December 31, 2017.

The Company reported that revenues for the fourth quarter and full year 2017 totaled NIS 975 million ($281 million) and NIS 3,871 million ($1,117 million), respectively; EBITDA for the fourth quarter 2017 totaled NIS 189 million ($55 million), or 19.4% of total revenues, and for the full year 2017 totaled NIS 853 million ($246 million), or 22.0% of total revenues; net income for the fourth quarter and full year 2017 totaled NIS 10 million ($3 million) and NIS 113 million ($33 million), respectively. Basic earnings per share for the fourth quarter and full year 2017 totaled NIS 0.08 ($0.02) and NIS 1.11 ($0.32), respectively.

Financial Review (2017 full year compared to 2016):

Revenues for 2017 decreased 3.9% totaling NIS 3,871 million ($1,117 million), compared to NIS 4,027 million ($1,161 million) last year. The decrease in revenues is attributed to a 3.8% decrease in service revenues and a 4.2% decrease in equipment revenues.

Service revenues for 2017 totaled NIS 2,919 million ($842 million), a 3.8% decrease from NIS 3,033 million ($875 million) last year.

Service revenues in the cellular segment totaled NIS 1,929 million ($556 million) in 2017, a 10.8% decrease from NIS 2,162 million ($624 million) last year. This decrease resulted mainly from the ongoing erosion in the price of these services as a result of the competition in the cellular market and from the difference between the national roaming services revenues in 2016 and the revenues for rights of use in cellular networks according to the network sharing agreement with Golan which came into force as of the beginning of the second quarter of 2017 (the “Network Sharing Agreement with Golan”).

Service revenues in the fixed-line segment totaled NIS 1,166 million ($336 million) in 2017, an 8.9% increase from NIS 1,071 million ($309 million) last year. This increase resulted mainly from an increase in revenues from TV and internet services, as well as from fixed-line communications services provided according to the Network Sharing Agreement with Golan, which were partially offset as a result of the discontinuance of consolidation of Internet Rimon Israel 2009 Ltd. (“Internet Rimon”), following the sale of the Group’s holdings in Internet Rimon in the second quarter of 2017 (the “Sale of Internet Rimon”).

Equipment revenues totaled NIS 952 million ($275 million) in 2017, a 4.2% decrease compared to NIS 994 million ($286 million) last year. This decrease resulted mainly from a decrease in the quantity of end user equipment sold during 2017 in the cellular segment as compared to 2016. This decrease was partially offset by an increase in equipment sales in the fixed-line segment.

Cost of revenues totaled NIS 2,680 million ($773 million) in 2017, compared to NIS 2,702 million ($779 million) in 2016, a 0.8% decrease. This decrease resulted mainly from Golan’s participation in operating costs according to the Network Sharing Agreement with Golan, as well as from a decrease in costs of end user equipment sold, primarily as a result of a decrease in the quantity of end user equipment sold in the cellular segment during 2017 as compared to 2016. This decrease was partially offset by an increase in content costs related to the TV field and in costs related to internet services in the fixed-line segment.

Gross profit for 2017 decreased 10.1% to NIS 1,191 million ($344 million), compared to NIS 1,325 million ($382 million) in 2016. Gross profit margin for 2017 amounted to 30.8%, down from 32.9% in 2016.

Selling, Marketing, General and Administrative Expenses (“SG&A Expenses”) for 2017 decreased 9.0% to NIS 905 million ($261 million), compared to NIS 994 million ($287 million) in 2016. This decrease is primarily a result of a decrease in salaries and commissions expenses due to the capitalization of part of the customer acquisition costs as a result of the early adoption of a new International Financial Reporting Standard (IFRS 15) since the first quarter of 2017 (the “Adoption of IFRS15”). The effect of the adoption of the standard on 2017 expenses totaled NIS 93 million ($27 million).

Other income for 2017 totaled NIS 11 million ($3 million), compared to other expenses of NIS 21 million ($6 million) in 2016. Other income for 2017 mainly include a gain from the Sale of Internet Rimon, in the amount of approximately NIS 10 million ($3 million). Other expenses for 2016, mainly include an expense for employee voluntary retirement plan in the amount of approximately NIS 13 million ($4 million).

Operating income for 2017 decreased 4.2% to NIS 297 million ($86 million) from NIS 310 million ($89 million) in 2016.

EBITDA for 2017 decreased by 0.6% totaling NIS 853 million ($246 million) compared to NIS 858 million ($247 million) in 2016. EBITDA for 2017, as a percent of revenues, totaled 22.0% up from 21.3% in 2016.

Financing expenses, net for 2017 decreased 4.0% and totaled NIS 144 million ($42 million), compared to NIS 150 million ($43 million) in 2016. The decrease resulted mainly from higher gains in the Company’s investment portfolio in 2017 compared to 2016. This decrease was partially offset by a decrease in interest income from installment sales of handsets, due to a decrease in the quantity of end user equipment sold during 2017 in the cellular segment as compared to 2016.

Taxes on income for 2017 totaled NIS 40 million ($11 million) of tax expenses, compared to NIS 10 million ($3 million) tax expenses in 2016. The increase resulted mainly from a tax income recorded in 2016, as a result of a tax assessment agreement for the years 2012-2013 and from a reduction in corporate tax rate for the years 2017 and on, which came into effect in 2016, following which the Company recorded a deferred tax income in 2016.

Net Income for 2017 totaled NIS 113 million ($33 million), compared to NIS 150 million ($43 million) in 2016, a 24.7% decrease.

Basic earnings per share for 2017 totaled NIS 1.11 ($0.32), compared to NIS 1.47 ($0.42) last year.

Financial Review (fourth quarter of 2017 compared to fourth quarter of 2016):

Revenues for the fourth quarter of 2017 decreased 0.9% totaling NIS 975 million ($281 million), compared to NIS 984 million ($284 million) in the fourth quarter last year. The decrease in revenues is attributed to a 1.0% decrease in service revenues and a 0.8% decrease in equipment revenues.

Service revenues totaled NIS 712 million ($205 million) in the fourth quarter of 2017, a 1.0% decrease from NIS 719 million ($207 million) in the fourth quarter last year.

Service revenues in the cellular segment totaled NIS 451 million ($130 million) in the fourth quarter of 2017, a 10.2% decrease from NIS 502 million ($145 million) in the fourth quarter last year. This decrease resulted mainly from the ongoing erosion in the prices of these services as a result of the competition in the cellular market and from the difference between the national roaming services revenues in the fourth quarter of 2016 and the revenues for rights of use in cellular networks according to the Network Sharing Agreement with Golan in the fourth quarter of 2017.

Service revenues in the fixed-line segment totaled NIS 303 million ($87 million) in the fourth quarter of 2017, a 13.5% increase from NIS 267 million ($77 million) in the fourth quarter last year. This increase resulted mainly from fixed-line communications services provided according to the Network Sharing Agreement with Golan, as well as from an increase in revenues from TV and internet services. This increase was partially offset as a result of the discontinuance of consolidation of Internet Rimon following the Sale of Internet Rimon.

Equipment revenues in the fourth quarter of 2017 totaled NIS 263 million ($76 million), a 0.8% decrease compared to NIS 265 million ($76 million) in the fourth quarter last year.

Cost of revenues for the fourth quarter of 2017 totaled NIS 680 million ($196 million), compared to NIS 697 million ($201 million) in the fourth quarter of 2016, a 2.4% decrease. This decrease resulted mainly from Golan’s participation in operating costs according to the Network Sharing Agreement with Golan, as well as from an increase of a provision for claims recorded in the fourth quarter of 2016. This decrease was partially offset by an increase in content costs related to the TV field and in costs related to internet services in the fixed-line segment.

Gross profit for the fourth quarter of 2017 increased 2.8% to NIS 295 million ($85 million), compared to NIS 287 million ($83 million) in the fourth quarter of 2016. Gross profit margin for the fourth quarter of 2017 amounted to 30.3%, up from 29.2% in the fourth quarter of 2016.

Selling, Marketing, General and Administrative Expenses (“SG&A Expenses”) for the fourth quarter of 2017 decreased 0.8% to NIS 249 million ($72 million), compared to NIS 251 million ($72 million) in the fourth quarter of 2016. This decrease is primarily a result of a decrease in salaries and resellers commissions expenses due to the capitalization of part of the customer acquisition costs as a result of the Adoption of IFRS15 (the effect of the adoption of the standard on the expenses in the fourth quarter of 2017 totaled NIS 21 million ($6 million)), as well as a decrease in advertising expenses. This decrease was partially offset by an increase in doubtful accounts expenses.

Operating income for the fourth quarter of 2017 increased by 40.6% to NIS 45 million ($13 million) from NIS 32 million ($9 million) in the fourth quarter of 2016.

EBITDA for the fourth quarter of 2017 increased by 9.2% totaling NIS 189 million ($55 million) compared to NIS 173 million ($50 million) in the fourth quarter of 2016. EBITDA as a percent of revenues for the fourth quarter of 2017 totaled 19.4%, up from 17.6% in the fourth quarter of 2016.

Financing expenses, net for the fourth quarter of 2017 decreased 25.0% and totaled NIS 30 million ($9 million), compared to NIS 40 million ($12 million) in the fourth quarter of 2016. The decrease resulted mainly from gains in the Company’s investment portfolio in the fourth quarter of 2017 as opposed to losses in the corresponding quarter of 2016.

Taxes on income for the fourth quarter of 2017 totaled NIS 5 million ($1 million) of tax expenses, compared to NIS 22 million ($6 million) of tax income in the fourth quarter of 2016. The increase resulted mainly from deferred tax income which was recorded in the fourth quarter last year, as a result of a decrease in corporate tax rate for the years 2017 and on.

Net Income for the fourth quarter of 2017 totaled NIS 10 million ($3 million), compared to NIS 14 million ($4 million) in the fourth quarter of 2016, a 28.6% decrease.

Basic earnings per share for the fourth quarter of 2017 totaled NIS 0.08 ($0.02), compared to NIS 0.12 ($0.03) in the fourth quarter last year.

Dividend

On March 25, 2018, the Company’s Board of Directors decided not to declare a cash dividend for the fourth quarter of 2017. In making its decision, the board of directors considered the Company’s dividend policy and business status and decided not to distribute a dividend at this time, given the intensified competition and its adverse effect on the Company’s results of operations, and in order to strengthen the Company’s balance sheet. The board of directors will re-evaluate its decision in future quarters. No future dividend declaration is guaranteed and is subject to the Company’s board of directors’ sole discretion, as detailed in the Company’s annual report for the year ended December 31, 2017 on Form 20-F dated March 26, 2018, or the Company’s 2017 Annual Report, under “Item 8 – Financial Information – A. Consolidated Statements and Other Financial Information – Dividend Policy”.

Cash Flow

Free cash flow for 2017 totaled NIS 325 million ($94 million), compared to NIS 416 million ($120 million) in 2016, a 21.9% decrease. The decrease in annual free cash flow resulted mainly from higher cash capital expenditures in fixed assets and intangible assets and others in the 2017 as compared to 2016, as well as from the difference between the receipts from rights of use in cellular networks according to the Network Sharing Agreement with Golan in 2017, and the receipts from national roaming services revenues in 2016. This decrease was partially offset by a decrease in tax payments, net, in 2017 as compared to 2016, which resulted, among others, from a receipt of a refund from the Israeli tax authorities in 2017.

Free cash flow for the fourth quarter of 2017 totaled NIS 77 million ($22 million), compared to NIS 83 million ($24 million) in the fourth quarter of 2016, a 7.2% decrease. The decrease in quarterly free cash flow resulted mainly from an increase in payments to payroll and other payables due to timing differences between the quarters. This decrease was partially offset by an increase in receipts from mobile operators in connection with the Company’s roaming activity and a decrease in tax payments, net.

Total Equity

Total Equity as of December 31, 2017 amounted to NIS 1,441 million ($415 million) primarily consisting of undistributed accumulated retained earnings of the Company.

Shares of Cellcom Israel Ltd. have been recently spotted trading -32.93% off of the 52-week high price. On the other end, company shares have been noted -1.38% away from the low price over the last 52-weeks. 52 week range of the stock remained $ 7.25 – 10.66. Switching over to some distances from popular moving averages, we see that the stock has been recorded -16.74% away from the 50 day moving average and -22.74% away from the 200 day moving average. Moving closer, we can see that shares have been trading -8.68% off of the 20-day moving average.

Peter Hamm

Peter Hamm is an author, journalist and CEO of the website. He has more than 5 years of experience in institutional investment markets, including fixed income, equities, derivatives and real estate. He has a Bachelor in Business Administration with a major in Finance. He bought his first stocks in a private business at age 15 and made his first public stock trade at 23. He has always been interested in the stock market and how it behaves. As the dad of two children, he’s made saving money and investing for them a high priority. Over many years of investing, he has made some wise choices and he’s made many mistakes. But he’s learned from both. Mr. Peter observations and experience give him the insight to stock market patterns and the investor behaviors that create them. He reports about Earnings news category. Address: 3876 Levy Court, EASTON, Pennsylvania Email: Peter@newscontrol.info

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