What’s it all about?
The Italian market, with the upside of being highly underpenetrated and underserved, is providing early signs it is catching up, and TI is starting to deliver on its strategic plan. Momentum is set to continue in Q4 and most of 2017E both in Italy and Brazil, while the risk of Open Fibre (OF) and Iliad are overplayed and manageable (with the potential buffer of a new cost-cutting plan). While EBITDA growth may match the industry over the next three years, the unwinding of capex should allow for a 2016-20E equity FCF CAGR of 26%, above peers and contributing to the derisking of the balance sheet. The c. 35-40% discount to the sector is unwarranted, and the solid execution with a return to EBITDA growth should gradually close the valuation gap.
We raise our TP from EUR0.95 to EUR1.05 (ordinary shares).