((Automated translation by Reuters, please see disclaimer https://bit.ly/rtrsauto))
*
Stocks lose almost a quarter of their value
*
Analysts question debt and cash flow targets
*
Market reaction is a setback for CEO seeking second term
(Updated with additional comment from the Director General in paragraph 4) by Elvira Pollina
Telecom Italia (TIM) shares
TLIT.MI plunged 24% on Thursday amid concerns over debt levels, cash flow and dividend payments, after the former phone monopoly published a three-year outlook as part of a new structure resulting from the planned sale of its network.
Shares of TIM, listed in Milan, hit their lowest level since December 2022, with the biggest daily decline on record and a trading volume 13 times higher than the daily average over the past 30 days.
The rout was a blow to TIM’s chief executive, Pietro Labriola, who is seeking a new term at the helm of the company at next month’s shareholders’ meeting and has outlined his vision for the new TIM at an investor day on Thursday.
Asked at a news conference about market reaction, Mr. Labriola said the company would evaluate the situation, flagging what he called “abnormal” volumes in trading, without giving further details.
“We cannot hide (the fact that) the market reacts in a particular way,” Mr. Labriola told analysts, seeking to reassure the company’s ability to meet the outlook, which forecasts an annual increase of 8% of basic profit on a compound basis.
Debt has long been seen as one of the factors holding back TIM, along with fierce competition in its domestic market.
Analysts pointed out that the expected debt level for the company resulting from the sale of TIM’s national fixed line network, which TIM expects to complete in the middle of this year, was higher than market expectations.
“The leverage target of 1.6-1.7 times [les bénéfices de base de
la société] implies an increase in debt of around €900 million compared to the end-2023 proforma level of €6.15 billion,” Intesa Sanpaolo analyst Andrea de Vita wrote in a research note.
NETWORK AGREEMENT
Worth 22 billion euros ($24 billion) and backed by the Italian government, the sale of TIM’s network to KKR KKR.N is the centerpiece of Labriola’s efforts to reduce its 14 billion debt euros and transfer most of its workforce to the network.
TIM’s largest shareholder, Vivendi VIV.PA, questioned the company’s viability after the network’s sale and the French media group launched legal action over the deal.
According to Equita’s Domenico Ghilotti, the higher-than-expected debt level could be linked to network-related cash outflows before closing and the Brazilian company’s dividend policy, as well as financial charges and costs restructuring.
Chief Financial Officer Adrian Calaza highlighted the impact of running the company as integrated into the network business for at least half of this year, which would be negative in terms of cash flow.
“Cash flow generation will start from 2025, including for domestic operations,” he said.
Analysts also noted that the company did not include dividend distribution plans in the outlook statement, an issue Calaza said was too early to discuss.