Nessuah Zannex assesses Cellcom at higher NIS 9.6b, downgrades Discount Investment

Analysts encouraged by Cellcom's move away from LMDS production bid
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Tel Aviv-based investment house Nessuah Zannex Securities today downgraded Discount Investment Corporation from Buy to Accumulate after the company pre-announced massive write-offs for the third quarter.

Also, DIC shares jumped 16% in the last month. The jump "narrowed the company discount to net asset value (NAV) significantly," wrote senior analyst Haim Israel in his research note.

Israel affirmed the company's 12-month price objective at NIS 130, only 4% above its current level.

Although Discount announced on Sunday it would write off investments and make various provisions totaling 184 million shekels in the third quarter, Nessuah Zannex said: "We maintain our view that DIC is a leading force in the Israeli telecommunications sector".

The write-offs include NIS 63 million for DIC's 49.9% holding in Golden Egg Ventures, and an NIS 26 million tax provision for a historic over-valuation of Scitex Corporation (Nasdaq:SCIX).

On the upside, Nessuah Zannex raised its assessment of DIC's 25% stake in cellular operator Cellcom, after the company abandoned talks to establish a joint venture with Eurocom startup Ofek The New World.

The JV was designed to compete with Bezeq in the domestic communications market.

But, Israel says, the JV was not expected to break even. Moreover, it could not be expected to achieve a market share of more than 10% to 13%.

Abandoning the project will relieve Cellcom of the heavy burden of a $200 million to $250 million investment over three years in a weak telecommunications environment.

Israel reassessed Cellcom at NIS 9.6 billion from NIS 9.1 billion, which translates to $1,000 per subscriber. But that value is far below the per-subscriber value of peer companies abroad, which ranges from $1,300 to $1,600, Israel notes.

Other key DIC holdings include 48.5% of the Tevel cable TV company, which Nessuah Zannex assesses at NIS 349 million (valuating the company at NIS 720 million).