Analyst Note| Javier Correonero |
Narrow-moat Telecom Italia shares are up 8% at the time of the writing as the market welcomed the recognition of a EUR 5.9 billion tax credit, which will ease Telecom Italia’s tax payments for several years and, which made net profit jump 500% in 2020. We believe the market has correctly priced the value of this asset at close to EUR 800 million (the added market capitalization in the ordinary and preferred shares), which is in line with our calculations. Had the tax realignment not occurred, net profits would have remained flat at around EUR 1.3 billion. Although the company also managed to slightly beat consensus expectations for revenue and EBITDA after leases, or EBITDAaL, for 2020, the share price increase on Feb. 24 is mainly driven by the newly recognized tax asset. We maintain our fair value estimate of EUR 0.62.