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Telecom Italia SpA ADR TIIAY

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Morningstar’s Analysis

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Market Welcomes EUR 5.9 Billion Tax Credit for Telecom Italia; Maintaining FVE

Javier Correonero Equity Analyst

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.

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Company Profile

Business Description

Telecom Italia is the incumbent telephone operator in Italy with 9 million retail and 8 million wholesale fixed-line subscribers, 31 million wireless customers, and close to 8 million retail broadband subscribers. Telecom Italia, the largest fix network owner in Italy, has been rolling out fiber to the home in order to better compete in the broadband market. It also has 55 million wireless subscribers in Brazil (24% market share) and has started building a broadband network in the country.

Corso D'Italia, 41
Rome, 00198, Italy
T +39 636881
Sector Communication Services
Industry Telecom Services
Most Recent Earnings Sep 30, 2020
Fiscal Year End Dec 31, 2020
Stock Type
Employees 52,480