Bezeq（BEZQ.IT）Increased risk， slower 2024； down to Neutral

Investment Rating - The report downgrades Bezeq to Neutral with a new price target of NIS4.4, down from Buy and NIS6.1 [2][5][13] Core Viewpoints - Bezeq has a strong balance sheet with a net debt to EBITDA ratio of approximately 1.6x, compared to the sector average of 2.7x, and offers defensive returns with a projected 70% net profit payout in 2024, translating to a dividend yield of around 7% [2][4][10] - The mid-term outlook remains attractive with catalysts such as a decline in FTTH capex and cost reductions in satellite operations, although the risk premium has increased recently, leading to caution regarding the 2024 outlook [2][3][10] - Regulatory pressures are expected to continue impacting profitability, particularly concerning FTTH campaigns and fixed broadband rates, which may hinder revenue growth [3][10][11] Summary by Sections Financial Performance - Bezeq's revenue for 2024 is projected at NIS8.823 billion, reflecting a slight decline from previous estimates, with EBITDA expected to be around NIS3.719 billion [7][15] - The company anticipates a flat year-over-year adjusted EBITDA for 2024, with a forecasted slight miss at NIS3.7 billion [3][15] Dividend Policy - Bezeq plans to increase its net profit payout ratio by 10 percentage points annually from 70% in 2024 until it reaches 100% in 2027 [4][8][18] Valuation and Estimates - The report incorporates a higher WACC of 9.2% due to an increased risk premium, which has contributed to the reduction in price target [6][13] - The valuation reflects a DCF-derived price target of NIS4.4, with a dividend yield of approximately 7% for 2024, supported by a free cash flow yield of around 9% [6][10] Market Position and Outlook - Bezeq is positioned as Israel's largest telecommunications provider, with significant market share in mobile and pay-TV, but faces ongoing regulatory challenges that may limit growth [10][12] - The company is expected to achieve a compound annual growth rate (CAGR) of 8% in free cash flow from 2024 to 2027, despite a projected dip in 2024 [9][10]