Telecom Italia: per Morningstar è sottovalutata

di Allan Nichols, Senior equity analyst di Morningstar

Telecom Italia reported poor 2015 results, but we don’t anticipate any significant changes to our fair value estimate. Our narrow moat rating is unchanged. The firm reported an 8.6% year-over-year decline in revenue, versus our projection of a 6.3% drop. While there are signs of stabilisation in its domestic consumer business, its Italian business sector and its Brazilian operations continue to struggle. TI’s consumer business declined by 1.1%, with the wireless business actually growing slightly, as average revenue per user, or ARPU, stabilised because of the growth of data usage.

However, this was more than offset by a 2.9% fall in the fixed-line sector. On an even worse note, the business segment declined by 4.6%, as both wireless and traditional fixed-line service fell; growth in information and communications technology and cloud services only partially offset this. While we expect continued revenue declines in Italy in 2016, we anticipate that they will be reduced from 2015.

However, the bigger issue was TIM Brasil, where revenue fell 12.1% in terms of the Brazilian real; this was then translated back to euros at an even lower level. TIM was hit particularly hard because of its focus on prepaid wireless, which is the segment that economic weakness hurts first. This led to a 12.5% loss of its subscriber base, down to 66.2 million, and an additional 5.6% hit to its ARPU. We expect that 2016 will be another difficult year for Brazil, before it slowly starts to recover.

TI’s reported EBITDA margin was also poor at 35.5%, versus our projection of 39.8%. This included a number of write-downs, but we question whether some of these should have been included. That said, we don’t think the reported number is reflective of reality, and we anticipate better margins going forward. Owing to the significant drop in the stock price over the past couple of months, we now think the shares are slightly undervalued.

Vuoi ricevere le notizie di Bluerating direttamente nella tua Inbox? Iscriviti alla nostra newsletter!