BUY TELECOM ITALIA:

Equity vs long bond, has hugely u/p (see graph below) & strong numbers from Vodafone in Italy

Vodafone numbers strong in Italy, European macro flying and so is the euro so buy domestic growth.

Still the cheapest telco in Europe post the last 3 quarters of excellent earnings growth. With a large gap between cons and mgmt guidance set to narrow.

At the same time current valuations (DCF, relative and BV) point to TP of 1.37. Equity should catch up with bonds.

Telecom Italia has a clear road ahead in Italy to dominate TV distribution with a market share similar to the 50% it enjoys in classical Fixed broadband. There is no cable operator in Italy and Italian homes are rapidly expected to end up watching TV via the telcos. By the end of 2017, >75% of the population will have access to fibre and >95% to 4G! Besides the Italian group is entering the age of the ultra-fast broadband networks with a very solid domestic margin at 45%+.

On the valuation front, my DCF gives a TP of €2.06 and relative to peers ebitda of €1.02.

STRONG BUY PT 1.37

 

TIT: BUY
ANOTHER GOOD SET OF NUMBERS COMING

Tuesday • 2nd May 2017 • 14:30

Numbers after the close tomorrow. Set to be another good print, which isn’t reflected in recent underperformance.

Rev growth of 2.5% and EBITDA growth of 7% show continued sequential improvement and compare well vs the sector (see KPN and ORA weakness post numbers). Again not reflected in its 5x EBITDA valuation. TIM has already reported well and supports this.

Questions last quarter over CAPEX and whether the increased year 1 will actually mean sustained capex creep given ENELs entry. Questions here will be important.

We should also get relief with confirmation of the VIV CEO as Chairman and reaffirmation of VIVs commitment to the story, removing another recent overhang.

Consensus still does not model full potential cost saves. Another ‘show me quarter’ brings us closer to their realisation. There are not many telcos seeing upgrades. And certainly none at this valuation.

BUY into numbers /STAY LONG. -3% on trade so far

 

UPDATE LONG TIT
MANAGEMENT TO DELIVER AGAIN

TELECOM ITALIA BUY:
ANOTHER TICK IN THE BOX

Nothing new in the numbers but an acceleration of its broaband coverage at no extra cost is a positive vs worries about ENEL as a new entrant.

This is another tick in terms of the ‘show me’ execution that is required for the stock to re-rate.

We continue to think it is cheap, with a positive catalyst likely at Q1, and a large gap between cons and mgmt guidance.

That is likely to close over time. Currently -1.65% on trade. BUY. We see 20% upside from here.

 

TELECOM ITALIA
LONG INTO Q2: GOOD NUMBERS + DELEVERAGING

Thursday• 03 November 2016 • 13:57

Expect a strong set of numbers tomorrow. Consensus is going for MSR growth in the 1% range, and domestic fixed -2%. It has total EBITDA growing 4% which is good in a sector context and should allow them to meet their guidance of FY EBITDA growth.

We have been told by mgmt that these numbers will be good and it pays for them to get the stock up over November given the mandatory convert pricing period.

Nevertheless consensus still doesn’t fully model the additional cost saves that Cattaneo outlined earlier in the year and to which he is financially motivated to achieve. Should costs beat for a second quarter in a row this should be taken well for a stock that is -35% YTD and meaningfully cheaper than the sector.

We have been long since January with varying success and have been pushing on the recent pull back. In Q2 nobody believed management so the stock was a great buy into numbers +7% on the day. This time around we have had a good 10 plus % rally into numbers as people finally seem to believe management. So the only concern we have is that the market is positive and long running into the event.

However we stay Long and expect another good quarter as management deliver again.

 

TELECOM ITALIA
LONG INTO Q2: GOOD NUMBERS + DELEVERAGING

Wednesday • 06 January 2016 • 13:57

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.