Connected with TIT – Telecom Italia (TIT)

Telecom Italia (TIT) – Introduction

Telecom Italia is the principal telecom operator in Italy. It has about 59 million customers: 13.4 million retail customers, 7.2 million wholesale, 31.6 million wireless and 6.9 million retail broadband. The company has a major stake in TIM Brasil where it has about 73 million mobile subscribers; this represents a market share of about 27%. Over the coming years, Telecom Italia’s principal objective is to increase its free cash flow and reduce its debt burden.

Investment case
Telecom Italia’s stocks have established a solid upward price trend since October 2011. The stock performed nicely during 2013, and is currently challenging the highs of €0.96 per share seen in October 2013. After it pulls through the present period of consolidation, the price is expected to continue its upward trend, with the possibility of a breakthrough at the €1.00 level.

At the moment, TIT’s business is probably more similar to an emerging market telecom operator than to a developed market operator. Not only does it have significant business exposure in LATAM, but its local customer base is behaving more like customers in emerging market regions, typically moving away from fixed-type subscriptions (e.g. fixed-line and mobile) to prepaid applications. Given this, TIT is facing substantial losses in fixed revenues.

While TIT’s present strategy is clearly focused on improving operating efficiencies, some of its business segments could be subject to takeover negotiations. TIT is an attractive takeover target because its business in Italy is well consolidated and it has a major interest in TIM Brasil, offering an interesting foothold into LATAM. One potential purchaser could be AT&T. 

Strengths and weaknesses analysis / Fundamental analysis
Strengths:

• TIT is doing the right thing by reducing its overall debt level. This will be achieved by selling assets, retaining free cash flow and issuing convertible debts,
• The company recently sold its exposure to the Argentinian market, which allows it to better focus on its key markets such as Italy and Brazil. A breakthrough from these efforts (increase in FCF and reduction of debts) should be seen in the results after 2015,
• The stock presently has an excellent technical structure.

Weaknesses:

• The customer base in Italy was declining last by -8.3% and therefore generating lower fixed income,
• The company’s key market (Italy) is a target market for a few of TIT’s competitors,
• The company’s key exposure (TIM Brasil) suffers from adverse exchange rate developments (a weak Real versus a strong Euro) and weak economic conditions,
• In Italy, ARPU rates continue to fall, however at a lower speed.

Company profile, investment opportunity and asset management integration:

Price ranges: