By Elvira Pollina
MILAN (Reuters) - The head of Telecom Italia (BIT:TLIT) (TIM) will this week outline his plans for a leaner company after a landmark sale of the group's fixed-line network, seeking a second term at the helm from April despite the reservations of top investor Vivendi (EPA:VIV).
Worth up to 22 billion euros ($23.88 billion) and backed by the Italian government, the sale of TIM's main infrastructure to U.S. fund KKR is aimed at slashing the former phone monopoly's debt pile, cutting costs and shifting over half of its domestic staff on to the network.
TIM Chief Executive Pietro Labriola hails the deal as a turning point for TIM as its financial burden has long been stifling a company whose earnings and revenue have also been shrinking for years due to stiff competition in Italy.
Elevated to the TIM top job in 2022, Labriola will present his new three-year strategy for Italy's biggest telecoms company on Thursday, March 7.
With TIM's Brazil-listed unit seen emerging as the group's main growth engine and cash generation contributor, analysts now see some scope for an improving outlook for the remaining domestic arm.
"TIM should further benefit from the long-due stabilisation of its domestic market," BofA Global research analysts wrote in a report last month.
BofA, which has a 'buy' recommendation on the stock, expects revenue at group level for the new streamlined TIM to grow at a 3% annual rate on a compounded basis (CAGR) across the three years to 2026 and core earnings to rise by an annual compound rate of 4.6% over the period.
CHALLENGING MARKET
TIM aims to finalise the network sale in the middle of the year subject to European Union antitrust authorisation, while TIM's rivals are also looking at M&A to reshape one of the most challenging European markets.
Swisscom is in talks to buy Vodafone (LON:VOD)'s Italian business and merge with its local unit Fastweb.
Labriola needs to convince investors of the sustainability of the domestic service business after years of setbacks which forced TIM to halt dividends.
TIM's 'enterprise' division offering connectivity and services such as cloud and cybersecurity to big corporate and public administration clients is seen as the main driver for growth in the Italian market.
Prospects are less bright for the unit serving consumer and small-sized business customers, hardest hit by the intense price competition partly linked to the entrance of Iliad in 2018.
Analysts expect subdued growth across the 2023-2026 period for this arm, with BofA projecting CAGR of 1.5% for core earnings.
"We still see multiple challenges in consumer, where broadband price competition appears to be increasing," Exane analysts wrote, flagging that a combination between Vodafone and Fastweb could create a stronger competitor in the business segment.
The sustainability of the Italian service business has been at the heart of Vivendi's arguments against the network sale.
The French media group, which has challenged the deal in court, could prove the main hurdle to Labriola's reappointment at a shareholder meeting in April.
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