Telecom Italia will publish its quarterly results on May 15. Will the numbers be able to give new impetus to the shares?
After a very positive 2023, in which the company saw its market capitalization rise by 36%, since the beginning of the year the stock has lost more than 20%, underperforming the Italian market by almost 40 percentage points, and is now traded at discount rate of 10% compared to the fair value of 0.25 euros, assigned by Morningstar analysts on February 15, 2024.
The stock is paying for the weakness of the sector at a European level which is suffering more than others from the pressure on profit margins exerted by the growth in operating costs, as demonstrated by the delay of the EURO STOXX Telecom index compared to the index of the region (around 800 pb vs the EURO STOXX index).
“This phenomenon is more evident in markets, such as the Italian one, where the level of competition is very high and companies are unable to pass on the increase in costs to customers since subscribers tend to switch to cheaper offers when their operator increases the price,” says Javier Correonero, equity analyst at Morningstar.
What to expect from the quarterly?
2023 ended for Telecom Italia with a slight increase in revenues (+3.1% year/year), even if the results recorded in the main markets were somewhat uneven. The domestic market, which accounts for around 70% of the overall turnover, recorded flat growth in the financial year just concluded, and it will be interesting to look at the trend in the number of subscribers and prices, especially in the mobile segment, where competition is harder. Another special observation, on the revenue front, is the business in Brazil. “The Brazilian market, which represents the remaining 30% of the group’s turnover, was the one that drove the growth in turnover in 2023, recording an increase of 10.7% compared to the previous year. Our expectations are also positive for the first quarter of 2024, also considering the double-digit growth reported last week by Vivo, the Brazilian subsidiary of Telefonica”, adds Correonero.
Investors will also watch the evolution of profit margins with interest. 2023 closed with an improvement in EBITDA margin of approximately 100 basis points (from 33.9% to 35%), and analysts expect operating expenses to remain stable, or slightly down, and estimate margin growth EBITDA After Lease between 5% and 7% (a metric used by companies in the sector which takes into account not only operating costs but also leasing fees). In this sense, Brazil’s contribution to profits is under observation. In the fourth quarter of 2023, the EBITDA produced by the Carioca market grew by almost 10%, raising its weight on the group’s overall EBITDA to 33% (from 31% in 2022).
Also pay attention to management’s announcements: “In recent times, management has proven to be more conservative in communicating the results expected in subsequent quarters, as demonstrated by the fact that at the end of 2023 they achieved the guidance announced at the beginning of the year. Furthermore, it will be interesting to understand whether new resources will be allocated to enrich the offer of digital content. Recently, in fact, the group declared that it had renewed the agreement with Warner Bros Discovery for the broadcast of the discovery+ and Eurosport channels through the TimVision platform”, concludes Correonero.
Vivendi case, first hearing on May 21st
Last November, Telecom Italia provided more details on the agreement reached with KKR for the sale of its NetCo fixed network. According to analysts, the amount paid by the American fund, equal to 18.8 billion euros, should reduce the company’s debt level from the current 20.6 billion to 6.4 billion euros, bringing the financial leverage (report debt/EBITDA) from 4 to 2, in line with that of competitors.
Vivendi, Telecom Italia’s largest shareholder, however, appealed, contesting the legitimacy of the board resolution of 5 November. The first hearing will take place on May 21st, but – as reported by Alliance News – the top management of the Italian company declared last April 19th that the deal is proceeding as scheduled (closing is expected by this summer).
SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk
To read the article, subscribe to Morningstar.
Register for free.
