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Telecom Italia (TI -4.5%) slumps after being downgraded to Neutral by JPMorgan; the firm had...

Telecom Italia (TI -4.5%) slumps after being downgraded to Neutral by JPMorgan; the firm had upgraded Telefonica in March, when shares were 29% higher. Meanwhile, fellow debt-laden peripheral eurozone incumbent telco Telefonica (TEF -0.5%) is barely moving after receiving a downgrade to Underperform from Bernstein.
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  • jjnscbusin
    , contributor
    Comments (15) | Send Message
     
    Downgrade TI savers and upgrade telefonica, does that make sense?

     

    - In their downgrade, there was no change in 2012/2013 equity FCF, and in fact an increase in 2014?

     

    - Yes they downgraded EBITDA 1% in 2013 and 2% in 2014, but EBITDA remains stable at 12-12.1B, valuing the company at 3.4 EV/EBITDA (assuming EV is 41.3B using 27.8B as net debt).

     

    - Assuming net debt doesnt make 27.6B and is 28.0B per JPM, that is still a ND/EBITDA ratio of 2.33X.

     

    - Also makes mention of possible JV with CDP (Metroweb), and acknowledges a positive catalyst by meeting debt targets ahead of schedule for a 25% give up of the JV, but gives no credit to such

     

    Let's compare to their upgrade of Telefonica

     

    - Domestic operations, TEF underperformed TI in Q22012

     

    - In macro, I'd think TEF would be more at risk than TI

     

    - Debt maturities covered. (That's nice but explain me the debt ratio convergence between TI and TEF, TEF going the wrong way)

     

    - TEF has a 2012E net debt/EBITDA of 2.4 declining to 2.1 in 2013 (but that is with the dividend cut, TI is making the same deleveraging strides with a decent dividend)

     

    - TEF has no dividend protection, although it does accelerate their deleveraging momentum

     

    - Is TEF cheaper than TI, if TEF has an EBITDA of 22B, but its EV is close to 95B, it trades at a 4.3 multiple compared to TI at 3.4.

     

    - But hey, TEF's 2013 forward multiple post deleveraging is 4.0. Wait, TI's similar progress pegs it at 3.2X. Nope, TI is still cheaper.

     

    I think JPM's analyst is wrong on this relative call.
    20 Aug 2012, 06:52 PM Reply Like
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