"As is the case with most countries in the Middle East, Israel rarely comes up in discussions of global 'safe havens', notes John Christy.
The editor of The Forbes International Investment Report explains, "But so far this year, Israel has been a pretty good place to hide from Wall Street’s woes." Here he looks at one Israeli favorite, Cellcom Israel (NYSE: CEL).
"Putting stereotypes about risk aside, Israel offers a lot of interesting opportunities, even for fairly conservative investors. Cellcom Israel is a prime example. The company is Israel’s largest mobile phone service provider, with sales of $1.6 billion in 2007.
"Since February 2007, the company has had a dual listing on both the New York and Tel Aviv stock exchanges. Discount Investment Corp. Ltd., one of Israel’s largest business groups, owns just over 50% of the company.
"With 3.1 million subscribers, Cellcom has a 34% share of Israel’s mobile telecom services market. Roughly three-quarters of Cellcom’s subscribers are individuals, and the remaining 25% are corporate customers.
"Israel’s mobile telecom market is fairly well developed, with a penetration rate almost 125%. In other words, there are more than 9 million mobile phone accounts for a population of 7.2 million people.
"Furthermore, spending on telecom services in Israel accounts for 4.4% of GDP. That’s a higher proportion than even the U.S. and Europe.
"But here’s the strange part. Despite the relative maturity of the industry, Israeli mobile phone users spend the bulk of their money on 'voice' services, or plain old phone calls. Value-added content (more expensive stuff like messaging, e-mail, ringtones, etc.) accounts for less than 10% of Cellcom’s revenue.
"In Europe, the norm is closer to 20%. As a result, Cellcom’s Average Revenue Per User (ARPU) runs about $40 per month versus more than $50 in European markets with similar levels of mobile phone usage.
"Part of this is due to Cellcom’s history as a low-cost alternative to other carries, and Cellcom was also somewhat late in rolling out these services. But that’s changing.
"Cellcom’s content-related revenue surged nearly 50% last year, albeit from a low base. This was in part due to a marketing strategy that draws heavily on Cellcom’s position as the leading provider of music-related content.
"With EBITDA of $550 million in 2007— a 35% margin—Cellcom throws off tons of cash. It has also done a good job keeping expenses under control.And at less than 12 times earnings, and less than 8 times EBITDA, the valuation looks very reasonable."
