Telecom Italia shares rally on improving outlook, tax boost

MILAN (Reuters) - Telecom Italia (TIM) shares rose more than 9% on Wednesday, after Italy’s biggest phone company said profit and sales should stabilise this year helped by initial signs of recovery in its battered home market.

FILE PHOTO: People walk in front of a Telecom Italia Mobile (TIM) store in downtown Rio de Janeiro August 20, 2014. REUTERS/Pilar Olivares

In a year in which the Italian economy shrank by 8.8% due to the pandemic, TIM managed to slightly beat expectations with a 6% drop in organic earnings before interest, tax, depreciation and amortisation (EBITDA) after lease costs.

The company’s shares were on track for their best daily gain since March, up 9.2% at 1518 GMT, versus a 0.8% fall in the European telecoms index. The stock has underperformed the sector in the past year.

“Telecom Italia ticked a number of boxes with its full-year results,” Deutsche Bank said in a note.

Other analysts concurred that the domestic fixed and mobile businesses of the former phone monopoly had improved in the fourth quarter thanks in part to a government-sponsored scheme to support household broadband take-up.

Shares were also supported by tax changes which lifted last year’s net profit, and a new tax structure which could boost the company’s cash flow in the medium term, they said.

NewStreet calculated the new tax structure was worth 0.12 euros per share, around 32% of TIM’s current value.

In reporting 2020 results on Tuesday, TIM also proposed keeping Chief Executive Luigi Gubitosi on for another term as shareholders prepare to appoint a new board on March 31.

The slate put forward by the board includes Vivendi CEO Arnaud de Puyfontaine and Giovanni Gorno Tempini, chairman of state lender CDP.

CDP, the second-largest shareholder in TIM behind Vivendi, partly owns Open Fiber, a fiber-optic provider whose assets would be merged with TIM’s under a government-sponsored plan that is still to be finalised.

“The proposal for directors ... should allow for stable corporate governance and hopefully smooth the way towards a deal with OpenFiber”, NewStreet said in a research note.

New Prime Minister Mario Draghi has put digital infrastructure at the heart of Italy’s agenda but has yet to clarify whether he intends to implement the unified network project launched by his predecessors and under what terms.

In a call with analysts, Gubitosi said he had various exchanges with new ministers and saw no reason to believe that Rome’s position on the project had changed.

He added, however, that the network tie-up needed to happen soon to realise potential synergies, or efficiencies, which technical due diligence showed to be “significant”.

“With the willingness of the government and the CDP to implement this agreement and generate value for the country, I think it will occur earlier rather than later”, Gubitosi said.

(Graphic: Telecom Italia share performance vs sector: )

Reporting by Elvira Pollina, additional reporting by Danilo Masoni, Stefano Bernabei; editing by Edmund Blair and Kirsten Donovan