Telecom Italia Third-Quarter Profit Tops Analysts Estimates

Telecom Italia SpA CEO Franco Bernabe
Franco Bernabe, chief executive officer of Telecom Italia SpA. Photographer: Giuseppe Aresu/Bloomberg

Telecom Italia SpA posted third-quarter profit that beat analysts’ estimates and reiterated its full-year forecasts as costs in Italy were kept in check amid the tensions of an economic slowdown. The stock rose the most in a month.

Net income declined 13 percent to 681 million euros ($870 million) from a restated profit of 786 million euros a year earlier, Italy’s largest phone company said in a statement today. Analysts had estimated profit of 664 million euros, according to data compiled by Bloomberg.

Telecom Italia, based in Milan, and other European former phone monopolies are suffering as competition and the region’s debt crisis crimp sales and margins. This week, Spain’s Telefonica SA reported profit that missed analyst estimates as competition weighed on revenue in its home market. Last month, France Telecom SA cut this year’s planned payout by as much as 41 percent as cheaper competitors hurt sales and profit.

“In a very difficult quarter for the telecom sector it is a great degree of comfort to see Telecom Italia hit their third-quarter consensus forecasts,” Saeed Baradar, an analyst at Societe Generale in London, said in a note.

The stock rose 3.7 percent in Milan, the biggest increase since Oct. 5, giving the company a market value of 13 billion euros.

Forecast Maintained

Telecom Italia’s earnings before interest, taxes, depreciation and amortization declined to 3 billion euros from 3.18 billion euros a year earlier. The company reiterated a February forecast of “essentially unchanged” revenue and Ebitda this year, excluding currency swings, acquisitions, disposals and non-organic income.

“Healthy cash generation has more than offset our requirements for tax and dividend payout, allowing us to confirm our previous guidance,” Chief Executive Officer Franco Bernabe said.

Telecom Italia is considering a plan to spin off its fixed-line access network and will decide by the end of this year whether to proceed, the CEO said in September.

Sales fell to 7.27 billion euros from 7.52 billion euros a year earlier.

Domestic fixed-line revenue dropped 4 percent to 9.6 billion euros in the first nine months and total domestic sales fell 4.7 percent to 13.4 billion euros. The Ebitda margin in Italy improved to 49.9 percent from 49.4 percent in the first three quarters of the year and to 52.5 percent from 51.2 percent in the third quarter.

Good Control

Domestic margins showed “continued good cost control,” Berenberg Bank analyst Paul Marsch said in a note today. “The shares are in deep value territory and against a sector that has seen many misses this quarter, an in-line set of financials is welcome -- however concerning the worsening top-line momentum picture.”

Marsch expressed concern in an Oct. 31 note that “domestic momentum would worsen significantly” in the second half.

“The performance of the domestic business unit is slightly better than the same period last year, thanks to the actions introduced to protect our customer base and average revenue per user with the development of new offers and new services,” Bernabe said of the first nine months.

Rating Pressure

Adjusted net debt fell to 29.5 billion euros at the end of September from 30.4 billion euros at the end of June. The company expects the measure will fall to about 27.5 billion euros by the end of 2012. The reiterated de-leveraging target “should reduce any pressure from credit rating agencies or any unfounded rumors of a dividend cut,” Societe Generale’s Baradar said.

Bernabe in August confirmed “the sustainability of the dividend policy previously announced.” The company is expected to maintain its dividend at 4.3 cents for ordinary shares, based on Bloomberg dividend forecasts.

Tim Participacoes SA, the company’s Brazilian unit, said on Oct. 30 that the quarter through September was a “tough one” and reported a 0.4 percent increase in profit. Argentinian unit Telecom Argentina SA reported a 1 percent rise in earnings in the first nine months.

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