In the debate that accompanied the sale of the infrastructure of Tim fixed networkand which continues to this day looking to the future of our group, there are some recurring themes, often the subject of analysis and debates that in my opinion are misleading. Two, among all, are the recurring questions: why didn’t you sell yourself Brazil Team instead of the fixed network? Will the new Tim be sustainable?
Results on non-domestic markets
The value of diversification
It is useful to compare Tim with other large European operators such as Deutsche Telekom, Orange and Telefonica, the former German, French and Spanish incumbents, because they have in common that international activities represent the largest part of their market capitalisation. Deutsche Telekom It is, in terms of size, the main European operator: and yet, approximately 56 billion in revenue which it achieved in the first half of the year, over 60% comes from the US market, where it is present through T-Mobile US, of which it holds the majority. Only the 22%, instead, comes from Germany. The percentages widen further if we look at the margins: over two thirds of theEbitda After Lease by June 30th they arrive from Overseas. If we shift our gaze to capitalization, thethe entire group is worth around 125 billion euros: over 100 are represented by the value of T-Mobile US’s share, which alone is worth over 225 billion dollars. And it is not a unique case. Telefonica generates approximately 30% of its revenues in Spain, il 20% in Germany and the remaining half in other markets, starting from Brazil and South America. On the stock exchange the 75% of Telefonica Brasil is worth 10 billion euros alone out of the 22 billion euros of the group’s total capitalization, and, before the delisting last April, the German business was worth just under 8 billion.
So Tim and Tim Brasil on the stock exchange listings…
In the case of Timthis dynamic is even more accentuated: the 67% of Tim Brasil is worth 4.8 billion eurosslightly less than the entire capitalization of the group, while generating just over 30% of the revenues and about half of the margins. But why do investors prefer to support companies, such as Tim Brazil, T-Mobile and Telefonica Brazil? Because they operate in rational markets and/or with growth prospects. In Europe, however, the market is more stagnant, and telecom companies often have to look for growth abroad to obtain an adequate return on investment.
A report by Jp Morgan del 2023 show how the return on invested capital (Roce) for European telecommunications, equal to 6% in analysts’ estimatesboth on average lower than the weighted average cost of capital (Wacc). Broadening our gaze to other world markets, it is clear that the return on invested capital in Italy and Europe is decidedly lower than in Asia or the United States, where Jp Morgan sees a Roce that ranges from 12% for T-Mobile US to 18% for Verizon.
Market consolidation has had a positive effect: markets with fewer operators tend to be more profitable. A NewStreet Report 2023 shows how in Europe markets with three mobile operators have a Average ROCE higher than markets with four operators (10% vs. 6%). In analyzing the European scenario, NewStreet also shows how Italy is the worst market from this point of view.
... And so Deutsche Telekom and t-mobile us
The importance of Brazil
The market Brazilian is experiencing profound transformationswith significant growth that benefits from several key factors, starting with the recent consolidation, which we helped create by acquiring Oi’s mobile activities and which brought the number of operators from five to three in a country of over 215 million inhabitants. This step has created a more rational scenario and has allowed all groups to focus on strategies based on the added value of their respective proposals rather than on competition based solely on price, in a country where mobile has enormous potential: over 97% of Internet access is via mobile network and almost 80% of banking transactions are conducted via smartphone.
And there is great potential for growth, especially since data consumption is still relatively low and current offers do not include an “abnormal” amount of gigabytes. Furthermore, the5G frequencies auction has been oriented more towards the objectives of digitalization and modernization of the country rather than immediate revenue, making the country one of the world leaders in terms of the breadth and modernity of its network. If in Italy the state collected 6.5 billion euros for the frequenciesBrazil followed a different path, collecting about 1.1 billion euros from the auction at the 2021 exchange rate but estimating investments by operators of over 6 billion. This has meant that the Brazilian 5G stand-alone network is the largest and most modern in the world, opening up future opportunities for the development of IoT servicesin which Tim Brasil, in the agribusiness, mining, industry and logistics sectors, is already a leader.
This scenario makes Brazil one of the most promising markets for telecommunications (with a return on invested capital, Roic, for several operators in double digits in 2023), with Tim Brasil standing out for its financial performance, leadership in 5G and innovation. The expected growth of Tim Brasil will also have a positive impact on Tim Italythanks to cash generation and increased dividends, which will support the group’s development in the two countries.
US Telcos Most Profitable
The right path for TIM
The case of Deutsche Telekomwhich in 2011 did not complete the sale of T-Mobile US to competitor AT&T, demonstrates how strategic decisions can determine the long-term success of a company. Like people, the life of companies also lives by sliding doors. At the time, revenues in the United States were just over 25% of those of the group and margins were 22%. If the 39 billion dollar deal (equal to about 58% of the German group’s capitalization the day before the deal, compared to a current value of the share held by DT of about 100 billion) had been concluded, it would probably have changed the fate of the company and, looking at today’s stock market values, not necessarily for the better.
A few years later, in 2014, there was talk of a possible sale of Tim Brasil. That could have been a sliding door for Tim too. In hindsight, however, the decision to invest in the relaunch of Brazil turned out to be the right one, since Brazil Team today comes 50% of the group’s margin and will support growth in the coming years, thanks to exposure to a healthy and expanding market, generating the necessary resources. Since 2022, the year in which the process of selling today’s network began, the stock has risen by 50%, going from 29 billion reais of capitalization to over 44 billion reaiscreating value for all shareholders, starting with Tim and, consequently, for its members.
Tim is already competitive today
Tim is today adiversified companyand not only geographically: it is also present in various technological segments (fixed, mobile and IT services) and customers (retail, small and medium-sized enterprises, large companies and public administrations), and is a set of businesses and mixes of activities in different phases of their life cycle, with different growth prospects – and consequently different risk – but which guarantee the sustainability of the group. Tim, therefore, will not be sustainable tomorrow, it is already sustainable today. Often, the group is perceived as only focused on the consumer market, the most complex of the three in which we operate and in which all the large companies operate, with difficulty. Telco in Europa. However, in addition to this segment, which represents approximately 40% of revenues and 30% of margins and in which it is worth remembering that in the last two years we have made significant improvements, there is the business related to large customers Corporate and Public Administration (Tim Enterprise), and the Brazilian activities.
These segments, together, generate approximately 60% of turnover and 70% margins (Ebitda after lease), and represent, respectively, the growth engine in Italy, with extremely interesting prospects, and the “cash cow”both for cash generation and growth, operating in a consolidated market and among the most interesting on a global level.
In short, ours is a balanced portfolio, combining assets with different risk and maturity profiles to optimize performance and stability, with a level of debt after the sale of the network that allows us to think about growth and strategic development. Looking at the new structure, thein the first half of 2024 brought the results we expecteddemonstrating a return to the company’s competitiveness and strengthening our confidence and determination to achieve our objectives both for the full year and for the subsequent years of our industrial plan.
* CEO Tim
#Tim #sustainable #growth
– 2024-09-14 20:56:15
