TELECOM ITALIA
A name we have had for a long time and has mainly caused us pain. Given the increasing risks to the investment case, with ENEL/Metroweb, and now ILD likely a new entrant once we get consolidation in Italy TI needs a good quarter and we have been promised one.
With FY guidance of at least stable EBITDA and Q1 of -5.1%, we should expect to start seeing the benefits of the cost cutting plan recently laid out by Cattaneo.
Consensus is looking for between -0.5% and -1% EBITDA growth with details on how this is likely to improve further in H2. These must be credible; the market is not giving them the benefit of the doubt currently.
KPIs will also be key in order for this improvement to be deemed sustainable into H2 and beyond. We should also expect to see a confirmation of the trough in Brazil that we witnessed in Q1 and we also expect the positive trend in net additions in fast BB to continue.
We expect good numbers, added to this we expect Cattaneo’s de leveraging to surprise to the upside. Leverage has been a major concern for investors and any beats here will be taken very well.
We feel the current price is unjustified. TI trades at a ~25% discount to peers and we see this closing post numbers tomorrow.
Stay long or open a position into tomorrows release.
TELECOM ITALIA: BUY
STRONG MACRO & FUNDAMENTALS
Wednesday • 06 January 2016 • 13:57
TI has proven a volatile stock of late, largely at the moment thanks to its status as a consensus long. We want to take this opportunity to initiate a long as this fits with our current Telco vs Luxury theme.
TI is cheap vs the sector at 6.5x EBITDA, with improving fundamentals thanks largely to the improving macro situation in Italy. The most recent data points have been nothing short of phenomenal.
The rating doesn’t reflect the (admittedly well known) M&A angles. While ORA being in talks with BOUY takes that cross border trade off the table for now, there is clearly much going on behind the scenes with BOLLORE and NIEL positioning for upside. The recent board seat approval paves the way for a Brazilian exit (probably unexpected by the market), and we wouldn’t be surprised to see CEO Patuano go with it.
The growing theme of data usage will be monetised going forward as more of our daily lives are controlled by our hand-held devices.
Brazil is clearly a mess, but becoming less important to TI in terms of size by the day. With everything that is going on in the market with china and exportation of deflation, we like bond proxy sectors. Added to Italy as a favoured market, we BUY TI.