On Wednesday, UBS downgraded shares of Bezeq (BEZQ:IT) (OTC: BZQIY) from Buy to Neutral, adjusting the price target to ILs4.40, down from ILs6.10. The revision reflects a more cautious stance on the company's outlook for the year ahead.
Bezeq, recognized for its robust balance sheet with a net debt to EBITDA ratio of approximately 1.6 times—significantly lower than the sector average of around 2.7 times—is also known for its defensive returns. The firm is expected to pay out 70% of its net profit for 2024, which translates to an estimated dividend yield of around 7%, compared to the sector average of approximately 5.5%.
Despite the attractive mid-term prospects, including anticipated catalysts in 2026 such as a decline in fiber-to-the-home (FTTH) capital expenditures and satellite cost reductions, UBS expressed caution. Concerns are primarily based on the growing risk premium and a less optimistic view of the 2024 earnings before interest, taxes, depreciation, and amortization (EBITDA) forecasted by UBS at NIS3.7 billion, slightly below the market consensus and company outlook of NIS3.8 billion.
UBS also noted that Bezeq's projected 8% compound annual growth rate (CAGR) from 2024 to 2027 is comparable to other European incumbents that offer similar high single-digit to low double-digit free cash flow growth profiles.
The potential for Bezeq includes benefits from the removal of structural separation between its fixed line and TV businesses and the shutdown of copper networks. However, regulatory decisions have consistently affected profitability and could continue to limit returns from the company's successful FTTH campaign.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.