Sales on the Tim stock in Piazza Affari do not diminish due to the continuing uncertainties about the strategic choices of the group and beyond. On the day when Pietro Labriola, current general manager and probable next CEO, informally illustrates to the directors the guidelines of the new business plan, which should provide for the proportional demerger of networks and services, the share loses 3.48% to € 0.422, after having slipped intraday to € 0.4153, the minimum since November 2021, below the price offered by the US fund Kkr at € 0.505.
According to press sources, 18 months are expected to carry out the project (spin-off and merger with Open Fiber) and therefore FiberCop would autonomously participate in the tenders for the Pnrr. 60% of the debt would be allocated to the network (10 billion euros out of 18 billion) and the NetCo’s EBITDA would be around 2 billion. The network can, in fact, sustain a higher leverage. The 5-fold multiple seems reasonable to Equita Sim (rating hold and target price at € 0.32 confirmed on Tim) in the hypothesis of a merger with Open Fiber which would give further support to the visibility of the numbers.
On ServiceCo there would remain 3.2 billion EBITDA after lease (press sources say 2 billion, an indication that does not return) and 8 billion net financial position after lease (2.5 times the net debt / EBITDA ratio after lease) . Of the 42.5 thousand national employees, more than 30 thousand would be in the NetCo, including customer service. “The metrics seem very reasonable to us. The risk of the stand-alone plan, in our opinion, is linked to the risk of executing the merger with Open Fiber, however significant leverage on both assets in a phase of high investments and credit ratings. already under pressure from the trend of the retail business, suffering due to the pressure of the ARPU (average revenue per user, ed.) fixed and mobile and due to the potential impact of the entry of Iliad.
Just today the offer for Iliad’s landline will be presented with the details and the commercial launch scheduled for January 25th. “And in a context that is still unclear for the group’s strategies”, Intesa Sanpaolo said today (buy rating and target price at € 0.47), “today’s launch of Iliad’s fixed line offer is destined to further increase the competitive pressure on the segment of fixed network services in Italy “. The investment bank expects an aggressive entry price, in line with the company’s strategy. “However, unlike the wireless business where Iliad is installing its infrastructure, Iliad will remain a pure reseller in the wireline business and therefore the wholesale cost should provide a floor for potential dumping,” he said.
Moreover, for Intesa Sanpaolo the scenario of Tim’s demerger may make sense for the NetCo (implied leverage of 5x), less so for the ServiceCo (implied leverage of 4x). Not to mention that “the enhancement of the cloud business and the fate of the 67% stake in Tim Brasil are other key elements of a still unclear puzzle”, concluded Intesa Sanpaolo.
Yesterday the Tim stock fell by 3% also following the downgrade of Exane Bnp paribas from neutral to underperform. The target price was also lowered from € 0.33 to € 0.31. Barclays did it today, reducing it from € 0.35 to € 0.27 and confirming the equal-weight recommendation. “We have updated the estimates to incorporate the cut in the guidance communicated in December”, explained Barclays analysts who lowered the 2021-2023 organic ebitda estimates to take into account the trend of the Italian business.
Why is the rating equal-weight
“Despite initial progress on cost cutting and deleveraging, Tim is facing a deteriorating competitive environment in Italy, with no mitigation in sight. However, a merger with Open Fiber’s network would create value. and still possible as the offer by Kkkr, so the share price should remain volatile “, predicted Barclays which simulated the worst scenario: no agreement with Open Fiber, a continuous deterioration of the trend of mobile telephony led by Iliad and of the retail / wholesale broadband trend, an unsuccessful offer by Kkr and a target price for Tim of 0.05 euros identified.
Conversely, in the best scenario: completion of all potential deals at attractive conditions (Open Fiber and Brazil), a more rational pricing environment in mobile telephony and strong growth in broadband subscribers, alternatively success of Kkr’s offer but at a higher price, at € 0.70 (in recent days there have been rumors of a raise to € 0.80 per share), Tim can be worth for Barclays, in fact, € 0.70. (All rights reserved)
