Turmoil Continues for Telecom Italia; We Recommend Investors Remain Cautious

Telecom Italia improved its 2022 guidance after second-quarter results were released, but in our view this improvement just changes the outlook from “awful” to “very bad.” We remind investors that Telecom Italia released a sizable profit warning at the beginning of the year (the fourth in 12 months) as competitive conditions in Italy remain very challenging. Management now expects EBITDA after leases to decline by the low teens during the year, compared with mid- to high-teen declines previously. Fixed and mobile service revenue declined by 5% and 4.1% year over year respectively, which has resulted in a 12.3% decline in EBITDA as operating expenses only declined 1% due to inflation and other cost pressures. We are maintaining our EUR 0.25 fair value estimate and highlight our Morningstar Uncertainty Rating of Very High for the company.