Partner Communications Company Ltd (ADR) (NASDAQ:PTNR)

sikiliza (84.41) Submitted: 11/29/2011 7:53:36 PM : Start Price: $8.23 PTNR Score: -13.92

Will outperform in the short term but will lag the index due to industry and competitive pressure in the telecom market in Israel. The govt's almost anti-business stance when it coem to telecoms spells doom for PTNR and Cellcom. Earnings release today point to a dividend reinstatement hence a likely upswing in the weeks to come:http://torontostar.morningstar.ca/globalhome/industry/news.asp?articleid=448536Partner Communications' PTNR third-quarter results were on par with our expectations and reaffirmed our belief that the Israeli telecommunications space is becoming more competitive. In the third quarter, Partner sales fell 7.2% sequentially to NIS 1.751 billion due to variety of factors: Partner paid out NIS 26 million in settlements, smartphone sales fell off 25%, and increasing competition pressured revenue per customer. On top of this, Partner calculates that the government reduction in connectivity tariffs cost the firm at least NIS 282 million in service revenue during the third quarter. While the firm's major competitors, Cellcom CEL and Pelephone, have also struggled with the new government regulations, we believe that operational slips and changing management have, and continue to, limit profitability at Partner. Since the third quarter of last year, the firm's operating income has fallen to NIS 314 million from NIS 476 million and operating margins have slid to 17.9% from 28.8%.More surprisingly, Partner reinstated the quarterly dividend and announced that it would distribute 80% of third quarter profits. This is an unexpected reversal as the company had higher margins and generated NIS 30 million more in profits in the second quarter, when the dividend was suspended. We are concerned that the dividend reinstatement is premature and that Partner may need to make additional infrastructure and marketing investments if the competitive situation continues to worsen. Still, Partner's third quarter was in line with our expectations and we are maintaining our fair value estimate.