* Target to stabilise Domestic EBITDA in 2016
We hosted a roadshow with Telecom Italia CFO, Mr Piergiorgio Peluso, in Zurich. The
company confirmed the objective to stabilise the y-o-y trend of Domestic EBITDA in
2016 (UBSe -2% yoy). This should result from the combination of the progressive
improvement of the Domestic top line trend (both fixed and mobile services) coupled
with further opex efficiencies. The trend of fixed lines losses is expected to remain
challenging, however the company expects some improvements to become visible
during 2016E.
* Brazil: focus on operations – Open to assess all opportunities
Macro and competitive dynamics remain tough in Brazil. Operational turn around will
require a few more quarters before paying off as company commercial positioning
(prepaid, mid/low-end of the market) leaves it more exposed to the weak private
consumption environment. TI is focused on stabilising the revenues (new commercial
offer) and on reducing the pressure on EBITDA (structural efficiency actions). As for
M&A scenarios, TI confirmed to be in no rush and remains open to assess all options
should the right conditions recur.
* Capital allocation: de-leverage actions for €3-4bn in 2016
Company reiterated its medium term target to de-lever in order to regain the
investment grade credit rating and re-establish a dividend policy. Over 2016 TI will
execute some extraordinary actions (on top of organic CF generation) that are expected
to provide some additional balance sheet flexibility (UBSe 2016 ND/EBITDA
proportionate to stay at ~3.4x). In details: i) conversion of the mandatory convertible
bond (€1.3bn); ii) proposed conversion of the saving shares (up to €0.6bn); iii) potential
disposal of large part of TI's 60% controlling stake in Inwit (€1.0-1.5bn range); iv)
potential closing of the disposal of TI's controlling stake in Telecom Argentina (€0.5bn).
* Valuation: PT, SOP based, at €1.18 for ordinaries and €1.08 for savings - Neutral
Pending the EGM (15th December) and low visibility on corporate governance, we
confirm our Neutral rating. The stock is trading at 14.7x on our 2015 EV/OpCF
estimate, broadly in line with sector average.