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Nice Timing

22 January 2019 by lberuti

Last Friday, TITIM ( Telecom Italia SpA ) issued a profit warning. They announced that organic EBITDA of its domestic business unit is expected to be lower than last year. Overall, including TIM’s brasil performance, consolidated organic EBITDA is expected to be about €8.1Bln. Adjusted consolidated net financial debt is expected to be about €25.2Bln. If the debt number was globally in line with expectations, the preliminary EBITDA disappointed. TTIM’s press release also suggested that this measure would remain under substantial pressure at least throughout the first semester, and that the cost of protecting the investor base in Italy comes at a high cost. There are also question marks regarding the strategy of the struggling former monopoly which has still not decided on a plan for its landline network, its most valuable asset. Its proposal to legally separate the network from the rest of the company in order to set-up the business for potential deals was rejected by Italy’s communications regulator over the week-end. TITIM’s stock got crushed (it was suspended at some point during the day to stop the rout) and ended the session down roughly 6%. The price action in credit was not different, and TITIM’s 5-year risk premium widened 19bps to 348bps, its widest level in more than 6 years. The bonds the company issued a couple of weeks ago at 99.436 were trading at 98.88. Nice timing.