Telecom Italia (TIM) (TLIT.MI) shares rose more than 5% to hit a four-month high on Thursday after the former phone monopoly flagged some improvement in its battered domestic business despite tough operating conditions.
The future shape of TIM, which needs to cut its 25 billion euro of debt, is still to be settled, with boss Pietro Labriola seeking a deal for its landline grid, as a new government weighs potential alternatives for consolidation in the Italian fibre market.
TIM, whose stock has lost some 50% since the start of the year after a string of profit warnings, reported an 11% drop in its core profit in the third quarter, a touch better than expectations.
Labriola, who took the helm of the company in January, said that the domestic churn or cancellation rate was the lowest in five years and stressed the positives in the latest report.
“You can see improvement on all metrics and with a positive outlook,” he said, adding that targets for the year were now in sight and adding the outlook could further improve next year.
“Investors are finally realising we are starting to fix things up operationally,” he added.
TIM has a guidance for a “low-teens” percentage rate decrease in core profit this year.
Total service revenue rose by 0.5% in the nine months, compared with a full year target for a low single digit decrease.
“Although the Italian market does remain competitive, we can see some clear signs of improvement on churn and mobile net adds,” Newstreet Research said in a report.
RESHAPING THE BUSINESS
Under pressure for years in its fiercely competitive domestic market, TIM is seeking a revamp centred on a break-up of its operations into several units to help cut debt.
The turnaround mostly relies on a multi-billion euro sale of its prized landline network to a pool of investors led by Italian state lender CDP, which is keen to control a national fibre champion by combining TIM’s grid with that of its smaller unit Open Fiber.
Sponsored by the previous government of Prime Minister Mario Draghi, the single network project is being reassessed by a right-wing government sworn in last month.
A potential rethink of the plan would include a CDP-backed takeover bid for TIM as a whole, with TIM’s top investor Vivendi (VIV.PA) and infrastructure funds joining the process, sources have said.
Labriola, who signed off an extension of talks with CDP on the landline grid until the end of this month, said a network deal with CDP remains “the best choice” to unlock synergies.
As part of efforts to revamp its domestic business, TIM has spun off its enterprise service arm, offering connectivity services for big corporate clients as well as cloud, Internet of things and cybersecurity businesses.
The move is expected to pave the way to the sale of a minority stake of the venture, which remains an option, Labriola said, adding TIM would look for an industrial partner rather than a financial one.