2024-03-11 17:38:00
For any large group listed on the stock exchange, communication is essential. If there is one moment when management must not fail, it is during the presentation of its strategic plan for the years to come. This event is always closely followed by investors and a cohort of financial analysts, who know the company like the back of their hand. On this occasion, any error, imprecision, or lack of explanation on a financial projection can be very expensive. And this is precisely the mishap that happened last Thursday to Telecom Italia.
That day, the historic transalpine operator, which is the equivalent of Orange in Italy, clarified the contours of its strategic plan for the period 2024-2026. Called “free to run”, this has, unusually, plunged investors and analysts into a thick fog, at a time that is nevertheless eminently important for its future. It was the first time that management revealed its financial objectives for 2026, taking into account the ongoing sale of its fixed Internet network, by far its most valuable asset.
“We mightn’t find our little ones! »
Analyst at Oddo BHF, Stéphane Beyazian underlines that “In view of the figures presented on Thursday, the group expected a net debt of between 7 and 7.5 billion euros in 2026”. “The problem is that this was only expected to drop by 500 million euros between 2024 and 2026, while the financial management indicated that it was forecasting 1.5 billion euros of cumulative free cash flow. over this period…” According to him, “there was an inconsistency between all the financial objectives and the financial management was unable to explain it”. Analyst at Alphavalue, Jean-Michel Salvador does not hide his astonishment either. “Debt projections did not match revenue targetshe added. We mightn’t find our little ones! »
The sanction was not long in coming: the stock plunged, the same day, by almost 24% on the Milan Stock Exchange, to 0.21 euros. After this fiasco, Telecom Italia finally split, this Monday morning, with a « clarification » to its strategic plan. But this « addendum » confirmed the fears of analysts. Rather than lowering the net debt outlook, Telecom Italia’s financial management revised its cash flow outlook downwards. The operator mentions various expenses, linked to a major workforce reduction plan or the cost of its debt. Eventually, “Telecom Italia confirms de facto a net debt reduction of only 500 million euros due to cumulative cash flows of only 500 million euros over 2025-2026, rather than 1.5 billion euros”, concludes Stéphane Beyazian. Which completely justifies, according to him, the fact that the markets were worried. They were, moreover, hardly reassured by today’s announcements. The stock, which had risen slightly on Friday, lost once more nearly 4.6% this Monday, to 0.21 euros.
Telecom Italia at the dawn of a transformation
This burst of green light on the stock market comes at the dawn of a vast transformation of Telecom Italia. It is, in fact, in the process of selling its jewel, its fixed Internet network, to the American fund KKR for an amount of up to 22 billion euros. He is the first operator of such scale to have chosen this path on the Old Continent. This strategy should allow it to get out of debt and relaunch itself following it has suffered, for years, from strong competition and an intense price war. But the maneuver is risky. This means that Telecom Italia will become a “simple” service operator, and will no longer have control over the development of its infrastructure.
In this context, what will happen to this European telecoms leader? Behind the scenes, many scenarios are discussed. After Thursday’s stock market slap, some imagine that Vivendi, the operator’s largest shareholder (with nearly 24% of the capital), might take advantage of this snub to try to take back the reins of the group. The French media giant is at odds with the current management of Telecom Italia. In particular, he is contesting in court the sale of the fixed Internet network, the amount of which he criticizes, being much lower than his expectations.
Others wonder if Iliad, the parent company of Free and Iliad Italia, might not try to offer a deal to Telecom Italia if his situation deteriorates further. Xavier Niel’s telecoms group might, in this hypothesis, position itself as a “savior”, and, perhaps, win the favor of the government. Iliad is now increasing its shopping in Europe, and dreams of growing in Italy. Last January, it notably failed, for the second time, to buy its rival Vodafone Italia.
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