Morningstar | Telecom Italia Reports Weak Preliminary Results; Reducing Fair Value Estimate to EUR 0.85 per Share
Telecom Italia reported preliminary results that were below our expectations, and we are reducing our fair value estimate for the local shares to EUR 0.85 from EUR 0.89 and to $9.70 per ADR from $10. We are maintaining our narrow moat rating. While we believe the shares are undervalued, we think the firm’s stock has much greater risk than most other European telecom firms, and the range of potential outcomes is wider. Thus, we give the stock a very high uncertainty rating. We believe there are better investments with lower risk in other European telecom stocks, such as Telefonica, BT Group, and Vodafone.No revenue results were provided, but the firm stated its organic EBITDA for the domestic business unit declined by a mid-single-digit percentage and overall expected organic EBITDA would be about EUR 8.1 billion versus our EUR 8.2 billion projection. Management also stated it expected the difficult Italian market would continue through at least the first half of 2019. Thus, we have reduced our EBITDA estimate for 2018 to EUR 8.1 billion and now expect it to be a bit lower in 2019 before it begins to increase again in 2020.
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