TELECOM ITALIA: BUY

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.