Tim tries to recover after yesterday’s extraordinary board meeting

Tim opened trading on the stock market this morning with a rise of +2.3%. The Telecom giant released a supplementary communication to the market early this morning after the data from March 7th presented on the occasion of the new industrial plan which had caused a landslide of almost 24% of the shares on the stock exchange due to fears linked to debt levels, to cash flow and the payment of dividends.

Yesterday an extraordinary meeting of the group’s board of directors was held with the agenda being the briefing by CEO Pietro Labriola to the directors after the anomalous decline in the stock. During the meeting, which lasted about two hours, the advisors illustrated what happened last Thursday, explaining to the board that the causes that triggered the nervousness of the markets cannot be attributed to the plan.

The meeting was therefore only informational and concluded without the need for any resolution. The company therefore moves forward with the “Free to run” plan, the Board of Directors has confirmed its support for the 2024-26 strategy set by CEO Labriola. Meanwhile, yesterday the financial director Adrian Calaza expressed his willingness to take a step back. “It is not an aggressive plan, it is a challenging plan but if we make the efforts we have to make we will succeed” Calaza said last Thursday, immediately clarifying that “we are not here to give you better numbers than we can do” and the final objective , giving financial flexibility to the group thus allowing it to ‘be free to run’, translates into a debt target of 1.6-1.7 times EBITDA in 2026 from the current ratio of 3.8 times. At the end of 2023 the ‘after lease’ net financial debt (net of leasing) was 20.3 billion, the sale of Netco will reduce it by around 14 billion but until the closing, therefore at least until June, Tim will continue to burn cash’, as the CEO Pietro Labriola and the financial director Adrian Calaza explained during the meeting with the financial community.

In today’s press release, Telecom Italia announces that it sees the pro-forma net debt, net of the estimated deleverage for the Netco operation, equal to approximately 6.1 billion euros as of December 31, 2023, around 7.5 billion at the end of 2004.

Net cash flow is expected to be around zero in 2025 and around 0.5 billion in 2026.

The change in debt is partly attributable to ordinary management (i.e. the Ebitda AL net of investments, financial charges, the performance of the Net Working Capital, the minorities of Tim Brasil and the tax and other charges component), partly to the extraordinary one (i.e. impacts connected to the Netco operation such as separation costs, any impacts from price adjustment and further items relating to Net working Capital).

As for cash flows, the levels indicated, if normalized, lead to a value of around 0.4 billion in 2025 and 0.8 billion in 2026.

The normalization factors of cash flows, explains the note, are connected to extraordinary cash outflows at the working capital level mainly related to the effective liquidation of personnel subject to early retirement incentive initiatives already activated and to the normalization of debt costs due to the impact of the expected improvement in creditworthiness “which will allow the company to implement, eventually, a more efficient management of the liquidity margin and the reduction of charges related to extraordinary items”.

The company therefore confirms the 2024-2026 guidance illustrated to the market and specifies that any upside could derive from the earn-outs connected to the Netco operation and the possible sale of Sparkle, the process of which is underway.

This morning, Equita analysts defined the additions received this morning from Tim as appropriate clarifications. For analysts “the decision to give full transparency to the cash flow plan assumptions is more than appropriate given the confusion created with Thursday’s Cmd”. At yesterday’s prices, the market values ​​the investment in Tim Brazil alone more than the entire Tim, with an implicit negative valuation of over 1 billion euros on the domestic business, a scenario which in our opinion makes little sense given the company’s solid financial structure. group post sale of NetCo. Furthermore, the valuation does not incorporate the possible upsides from the earn-outs (up to a maximum of 2.9 billion euros) while the potential sale of Sparkle, on which discussions with the Mef continue, would not have negative impacts on the free cash flow of the business domestic”. On Tim the rating is buy, with a target price of 0.35 euros (0.222 euros for the stock closing value on Friday).