TIM Earnings: Solid Pricing Discipline Bodes Well for the Brazilian Wireless Market
The Oi asset acquisition continues to create comparison headaches for TIM TIMB and its peers, but we believe TIM remains the weakest performer in the Brazilian wireless industry. We are increasing our fair value estimate to $18 per ADR from $16, reflecting the strengthening real but also on solid pricing discipline at TIM. We believe the shares are modestly undervalued, but we still prefer Vivo.
TIM lost another 764,000 net wireless customers during the first quarter, adding to the 1.2 million net losses the prior quarter (adjusted for the cleanup of nonpaying Oi customers). The firm’s share of total Brazilian wireless customers has declined about 2 percentage points since the Oi transaction closed. As former Oi customers migrate to new carriers, TIM appears to have been a net loser. Management expects to return to customer growth going forward as the Oi transition wraps up.
On the other hand, TIM continues to make good on its effort to maintain pricing discipline. Average revenue per customer increased to BRL 27.7 per month from BRL 26.6 during the prior quarter in what is normally a seasonally weaker period. Wireless service revenue increased 21% versus a year ago thanks to the Oi acquisition but declined 2% sequentially because of the smaller customer base and lower ancillary revenue, like interconnection. Fixed-line revenue growth decelerated to 6% from 9% last quarter, but the firm holds less than 2% of the Brazilian broadband market. TIM added 16,000 net UltraFibra customers, its best quarter in two years, and made the service available to 2.7 million new locations during the quarter, but it remains a tiny player in the Brazilian broadband market.
The adjusted EBITDA margin improved to 46% from 45% a year ago, a solid result considering inflationary cost pressures and the Oi transition. Management expects continued margin expansion as the Oi transition agreement wraps up and cost savings tied to the transaction are realized.
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